GEORGETOWN LAW

SPRING 2011

MUSIC LAW SEMINAR:

CHANGING LANDSCAPES IN THE MUSIC INDUSTRY AND THE LAW THAT GOVERNS IT LJ/G 372-05/08 VOLUME I

PROFESSORS: JULIA ROSS MICHAEL HUPPE

MUSIC LAW SEMINAR: CHANGING LANDSCAPES IN THE MUSIC INDUSTRY AND THE LAW THAT GOVERNS IT

Profs. Julie Ross and Michael Huppe Spring, 2011

COURSE MATERIALS VOLUME I: FIRST FOUR CLASSES

Table of Contents for Volume I I. A. First Class: Introduction ......................................................................................... 1 United States Constitution: Copyright Clause 2

B. Copyright Act of 1976: Definitions of Relevant Terms ( 101) and Scope of Copyright Protection ( 106) C. Music as Property: A Historical View

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1. Michael W. Carroll, Whose Music is it Anyway?: How We Came to View Musical Expression as a Form of Property, 72 U. Cin. L. Rev. 1405, 1412-1419, 1487-1496 (Summer 2004) ..................................................................................... 5 D. John M. Rolfe Jr. & John E. Murdock III, On the Record: How Music Connects with Law, 15 Bus. L. Today 17 (July/August, 2006) 23 E. Pre-1909 Act Caselaw 1. 2. 29

White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1 (1908)......... 29 Notes and Questions ..................................................................................... 35

II. Second Class: Music Law at the Dawn of the Modern Music Industry and the 1909 Copyright Act........................................................................................................... 36 A. Relevant Portions of the 1909 Copyright Act: Sections 1, 4, 5, 25 36

B. Early 1909-Act Cases: Duplication, Distribution, and Performance Right Issues in Sound Recordings and Compositions 39 1. Duplication of Recordings: Fonotipia Ltd. v. Bradley, 171 F. 951 (E.D.N.Y. Cir. 1909) ....................................................................................................... 39 2. Copying Perforated Piano Rolls: Aeolian Co. v. Royal Music Roll Co., 196 F. 926 (W.D.N.Y. 1912) ....................................................................................... 46 3. Compulsory License and Lyrics: Standard Music Roll Co. v. F. A. Mills, Inc., 241 F. 360 (3d Cir. 1917) ............................................................................. 47 4. Current Related Issue re Compulsory License and Lyrics: Leadsinger, Inc. v. BMG Music Publishing, 512 F.3d 522 (9th Cir. 2008) [skim this case] .............. 50 5. Performance Right in Musical Compositions: Herbert v. Shanley Co., 242 U.S. 591 (1917) ..................................................................................................... 56

C.

Early Challenges to Performance Rights Societies 1. 2.

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Harms v. Cohen, 279 F. 276 (E.D. Pa. 1922) ............................................... 57 Schwartz v. Broadcast Music Inc., 180 F.Supp. 322 (S.D.N.Y. 1959)......... 62

3. Bernard Korman, U.S. Position on Collective Administration of Copyright and Anti-Trust Law, 43 J. Copyright Soc'y U.S.A. 158 (Winter 1995) ............... 78 4. Notes and Questions ..................................................................................... 94

III. Third Class: Enforcement and Expansion of Performance and Duplication Rights in Compositions and Sound Recordings ........................................................................... 95 A. Enforcement of Performance Rights by Publishers and Composers 95

1. Performance of Musical Compositions During Motion Picture Exhibitions: M. Witmark & Sons v. Pastime Amusement Co., 298 F. 470 (D.S.C. 1924)....... 95 2. Radio Broadcasts of Music Over Hotel Loudspeakers: Buck v. Jewell-La Salle Realty Co., 283 U.S. 191 (1931) ................................. 102 3. Radio Broadcasts of Live Musical Performances: M. Witmark & Sons v. L. Bamberger & Co., 291 F. 776 (D.N.J. 1923) ............ 108 B. Duplication and Performance of Sound Recordings 1. 2. 111

Waring v. WDAS Broadcasting Station, 327 Pa. 433, 194 A. 631 (1937) . 111 RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940) .......................... 125

3. Duplication Rights: Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955)....................................................................................... 130 4. Notes and Questions ................................................................................... 138

IV. Fourth Class: Precursors to Current Music Law -- Increased Protection for Sound Recordings, the 1976 Copyright Act, and Radio Deregulation ...................................... 139 A. Protection of Sound Recordings 1. 2. 139

Goldstein v. California, 412 U.S. 546 (1973) ............................................. 139 Sound Recording Act of 1971..................................................................... 154

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3. Ringer Report on Performance Rights in Sound Recordings, Addendum to Report, 42 Fed. Reg. 12,763-8 (March 27, 1978) ............................................... 156 B. The 1976 Copyright Act and Preemption 1. 2. 163

17 U.S.C. Section 301 ................................................................................. 163 State True Name and Address Statutes ....................................................... 164

a. Cal. Penal Code 653w. Failure to disclose origin of recording or audiovisual work; violations; punishment b. C. Anderson v. Nidorf, 26 F.3d 100 (9th Cir. 1994)

164 166 168

Radio Deregulation and Its Effect on the Music Industry 1. 2.

Telecommunications Act of 1996, Section 202 .......................................... 168 Prometheus Radio Project v. F.C.C., 373 F.3d 372 (3d Cir. 2004)............ 169

3. Consolidation in the Radio Industry and Its Impact on Music: In Re 2006 Quadrennial Regulatory Review Review of the Commissions Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 23 F.C.C.R. 2010 (Released Feb. 4, 2008) ... 176 4. Notes and Questions ................................................................................... 185

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Music Law: Changing Landscapes in the Music Industry and the Law that Governs It Profs. Ross and Huppe I. First Class: Introduction

What is music law? Unlike tax law, or election law, tort law, or securities law, there is no easily-defined set of legal principles that one can point to as making up the relevant body of law in the subject area. It is perhaps more like the law of the horse, criticized by Judge Frank Easterbrook as an ineffective way to organize and analyze what might otherwise be unrelated legal principles,1 in that many of the legal principles affecting participants in the music industry find their sources in multiple disciplines and often are general principles that are not limited in their application to the world of music. However, within general bodies of law such as copyright, contract, antitrust, and the right of publicity, legislatures and courts have carved out an identifiable set of rules that apply particularly to musical compositions, sound recordings, musicians, and other participants in the music industry. This seminar presumes a basic background in copyright and contract, which is essential to understanding the more complex rules that apply in the context of the music industry, but takes on a broad array of legal issues and examines their application in the creation, distribution, and consumption of music. The law and the industry are both evolving rapidly, and it is thus an exciting and dynamic area of law to follow and analyze; we hope that you find it as fascinating as we do. We begin the seminar with some introductory materials: the Copyright clause of the U.S. Constitution, the basic provisions of the 1976 Copyright Act with which one must be familiar to gain an understanding of the more complex copyright provisions that we will examine, a historical piece on the development of the conception of music as property, and an article providing an overview of the many different components and participants within today's music industry. From there, we will look at the state of legal protection for music and those involved in creating and distributing it at the turn of the 20th century, immediately before and after the enactment of the Copyright Act of 1909.
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Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. Legal F. 207 (1996). As Judge Easterbrook put it, Lots of cases deal with sales of horses; others deal with people kicked by horses; still more deal with the licensing and racing of horses, or with the care veterinarians give to horses, or with prizes at horse shows. Any effort to collect these strands into a course on The Law of the Horse is doomed to be shallow and to miss unifying principles. Teaching 100 percent of the cases on people kicked by horses will not convey the law of torts very well. Far better for most students better, even, for those who plan to go into the horse trade to take courses in property, torts, commercial transactions, and the like, adding to the diet of horse cases a smattering of transactions in cucumbers, cats, coal, and cribs. Only by putting the law of the horse in the context of broader rules about commercial endeavors could one really understand the law about horses. Id. at 207-08.

These early cases and statutory provisions are essential to an understanding of why and how the music industry developed into its current state, and they illustrate some common themes in music law that are repeated in current case law and in the debate over the future of the industry. The seminar will then move through a discussion and analysis of the law regarding performance rights organizations and legal issues regarding duplication and performance of sound recordings, followed by units on the legal issues presented in the era of digital music, the effect of radio deregulation on the music industry, and some of the legal issues arising out of the provisions of the 1976 Copyright Act. We will turn from copyright issues to the right of publicity and its role in the music industry, and will then examine some common types of contracts and contractual provisions that lawyers might encounter in representing participants in the music industry. The last portion of the seminar will deal with music licensing issues and with the particular topics that students have chosen for their Writing Requirement papers, culminating in presentations and discussions of those paper topics. The materials that follow were designed illustrate some of the most important legal issues faced by today's musicians and other participants in the music industry and how those issues parallel and/or differ from those that have arisen throughout the history of the industry. It is our hope that they will also spark discussion of how the law and the industry might or should evolve in the future in the face of new technologies and conceptions of music, new demands and uses by consumers, and new models for providing access to musical works. We look forward to exploring these ideas with you. __________________________

A.

United States Constitution: Copyright Clause

The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. . . U.S. CONSTITUTION, Article I, Section 8, clause 8.

B. Copyright Act of 1976: Definitions of Relevant Terms ( 101) and Scope of Copyright Protection ( 106) Section 101 Except as otherwise provided in this title, as used in this title, the following terms and their variant forms mean the following: . . . Copies are material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term copies includes the material object, other than a phonorecord, in which the work is first fixed. . . . A work is created when it is fixed in a copy or phonorecord for the first time; where a work is prepared over a period of time, the portion of it that has been fixed at any particular time constitutes the work as of that time, and where the work has been prepared in different versions, each version constitutes a separate work. . . . A work is fixed in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration. A work consisting of sounds, images, or both, that are being transmitted, is fixed for purposes of this title if a fixation of the work is being made simultaneously with its transmission. . . . To perform a work means to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible. A performing rights society is an association, corporation, or other entity that licenses the public performance of nondramatic musical works on behalf of copyright owners of such works, such as the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC, Inc. Phonorecords are material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term phonorecords includes the material object in which the sounds are first fixed. . . . Publication is the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further 3

distribution, public performance, or public display, constitutes publication. A public performance or display of a work does not of itself constitute publication. To perform or display a work publicly means-(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or (2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times. . . . Sound recordings are works that result from the fixation of a series of musical, spoken, or other sounds, but not including the sounds accompanying a motion picture or other audiovisual work, regardless of the nature of the material objects, such as disks, tapes, or other phonorecords, in which they are embodied. Section 106 Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.

C.

Music as Property: A Historical View

1. Michael W. Carroll, Whose Music is it Anyway?: How We Came to View Musical Expression as a Form of Property, 72 U. Cin. L. Rev. 1405, 1412-1419, 1487-1496 (Summer 2004)

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D. John M. Rolfe Jr. & John E. Murdock III, On the Record: How Music Connects with Law, 15 Bus. L. Today 17 (July/August, 2006)
[FNa1]

Let's set the scene. Close your eyes. It is a sunny Friday afternoon and you are driving to the country for a long weekend. Your convertible hums along the road, escaping the week's labors, and you turn on the radio. Your favorite song joins the wind, and alone on the road in the middle of nowhere you sing away at the top of your lungs. Paradise. Have you ever stopped to think about exactly what you were hearing, where the music came from, and how it got there? Business and art combine through the fabric of law to bring you a song. It truly does take a village to make a successful record. When a performer has a No. 1 hit, it is customary to have a party. At this party, the people and companies involved with the record are thanked. It is a vast crowd: songwriters, song publishers, performing artists, producers, promoters, record companies, bankers, business managers and others. All of these people come together through an intricate matrix of legal relationships to make a single record. Even if a lawyer is not on the stage at a No. 1 party (they sometimes are), his or her participation is still essential to fashion the legal rights and duties of so many different interests. This article introduces you to the rights and duties of the primary parties who must cooperate to deliver a record. Some general industry background and nomenclature may be helpful. There are two primary creative aspects to a record: the song itself and its performance. Songs are written by songwriters or just writers. Some songwriters write both music and lyrics, but others write only one and collaborate for the other. When a song is performed, it is sung by a performing artist or artist. So even though songwriting is undoubtedly an art, a reference to an artist means someone who performs a song. Some very talented people can both write and perform, acting as both songwriters and artists. The legal schematic of the music industry is framed around the respective intellectual property rights of writers (as to songs) and artists (as to performances of songs). The music industry lives by the old adage that it all begins with a song. And so it does, often with a song first scribbled on a napkin or notebook paper or played to a tape recorder. From the moment a songwriter fixes lyrics or music in any medium, however informal, a copyright arises. 17 U.S.C. 102. This copyright is the very foundation of the music industry. The owner of a copyright in a song, with limited exceptions, has certain exclusive rights, including: The right to reproduce the song; The right to alter or prepare other versions of the song; The right to distribute the song; and The right to publicly perform or present the song to others.

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17 U.S.C. 106. Although a copyright arises automatically when a work is created, copyright owners achieve added protection under federal law by registering their copyrights with the U.S. Copyright Office in Washington. 17 U.S.C. 504, 505. Through registration, a copyright owner (a) establishes prima facie evidence of a valid copyright, (b) puts the public on notice of the copyright's exact date of creation, and (c) acquires access to federal courts, where the owner can recover statutory damages and attorneys' fees from infringers. The owner of a copyright in a song has the right to control the first release of a performance of the song. Thereafter, anyone has the right to record the song, as long as they pay royalties to the copyright owner. 17 U.S.C. 115. Even a song protected by a valid registered copyright is worth nothing unless someone performs it. Thus, songs must be marketed to performing artists. Most songwriters do not promote their songs by themselves. Instead, they assign their copyrights to music publishing companies in exchange for a writer's share (usually 50 percent) of the royalties earned from use of the copyright. The music publisher will make a song demonstration recording or demo. Once created, the publishing company pitches or presents the demo songs to various artists or record labels in hopes that one will cut or record the song for their next album. When an artist records the song, the songwriter and the publishing company finally have the opportunity to make money. A successful recording produces revenue for the songwriter and publishing company through many different distribution channels. U.S. copyright laws entitle the owner of a copyright of a song to a mechanical royalty each time a copy of the song is sold. The sale may consist of a piece of sheet music or of a performance recorded on tape, CD or any other tangible medium. The rate of royalty may be determined by negotiation. Absent an agreement, the U.S. Copyright Office has set a statutory rate for mechanical royalties. For example, on the sale of a single CD, the owner of the copyright for one song on the CD currently receives 9.1 cents unless a lower rate has been negotiated. Most mechanical royalties for songs are collected and distributed through The Harry Fox Agency. U.S. copyright laws also entitle the owner of a copyright of a song to a performance royalty whenever a song is performed, whether the performance is live or pre-recorded. Thus, when a song plays on the radio, or when a band plays a song in your local bar, the songwriter earns a royalty. These performance royalties are collected and administered by one of three performing rights organizations (ASCAP, BMI and SESAC, collectively called PROs). Each song in a music publisher's repertoire is designated for collection in the United States through one of these PROs. The PROs collect royalties on actual performances where they can be tracked (such as on radio). Where performances cannot feasibly be tracked (such as at your local bar), the PROs issue blanket licenses to the locations and allocate the revenues among songs likely to have been performed by using statistical methods.

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The more popular a song becomes, the greater chance that other financial opportunities may arise beyond the usual mechanical and performance royalties. These other opportunities include the use of songs in other mediums such as motion pictures, TV shows, TV commercials, plays, books, DVDs, the Internet and ringtones. Publishing companies may grant synchronization licenses (licenses to synchronize music with visual content) for use of a song in motion pictures and television programs. The license fee for such use is a negotiated amount that depends on a number of factors, including (a) how the song is used by the movie studio or TV network (from background music to specifically featured music), (b) whether the song is being used as the title of a film or television program (think Pretty Woman) or over the opening or closing credits, and (c) the popularity of the song. A market that has grown over the past several years is the use of songs in TV commercials. Ad agencies pay considerable amounts of money for the right to use songs that become synonymous with their products (such as, the use of the song Like a Rock for Chevrolet trucks). With the use of the Internet and technology changing every day, the digital distribution of songs increasingly provides significant revenue opportunities. Songs can be distributed digitally not only as downloads for general use, but for use as ringtones for cell phones and for other digital devices. Some of these uses lend themselves to the unauthorized use or piracy of songs. Despite the music industry's recent crackdown on unauthorized file sharing (think Napster and Grokster), traditional record sales continue to slump. The entertainment industry is working hard to minimize piracy through law changes, law enforcement, and the establishment of legitimate revenue-producing digital distribution systems. In addition to collecting revenue in the United States, music publishing companies maintain relationships with foreign organizations to collect royalties in other territories. Many foreign countries are party to the Berne Convention, a treaty that affords some reciprocity in copyright matters. Most developed countries have some means by which a publishing company can collect royalty income from the sales and performances of their songs. In China and many less-developed countries, while potential markets are large, the governments provide no discipline for the collection of royalties on songs; piracy and counterfeiting are rampant. Lawyers often deal with song catalogs (collection of songs) when copyright owners want to sell or encumber their interests in copyrights. In either of these settings, the lawyer's primary tasks are to confirm the title to the copyright assets and determine their legal sufficiency. Diligence on a song catalog first takes the lawyer to the U.S. Copyright Office. As explained above, music publishing companies register their copyrights with that office. The lawyer can do a rudimentary search of the official copyright records through the Internet, but a more detailed search requires the engagement of a search firm. This search will show the chain of title to copyrights and can be evaluated much like real estate titles are examined. One shortcoming of the copyright records search is that there is a grace period within which filed conveyances may have retroactive effect (up to two months before 25

filing). Therefore, the public records can never be presumed to be totally current, and there is some measure of trust (backed by contractual warranties) that one receiving a transfer of copyrights must place in the grantor. Although the records of the U.S. Copyright Office will disclose titled ownership and liens, it is also prudent to perform a search for UCC financing statements. A security interest in a registered U.S. copyright can be perfected only by a filing in the U.S. Copyright Office, and a financing statement is ineffective to perfect. See UCC 9-311; National Peregrine, Inc. v. Capitol Federal Savings & Loan Ass'n (In re Peregrine Entertainment, Ltd.), 116 B.R. 194 (C.D.Cal. 1990). The sale or encumbrance of a registered copyright may involve ancillary rights beyond the copyright itself, however. These other rights could be subject to a security interest perfected by a financing statement. A UCC search will also avoid disputes with lenders who may not have understood the filing requirements but who claim an interest in the copyrights. Even if the transferor has good title to a copyright, the lawyer must consider whether the copyright itself is subject to other limitations. For example, when the writer assigns his or her rights to a publishing company, the writer retains a financial interest. Although this interest is usually 50 percent, it could be more, and this interest encumbers the publishing company's right to royalty revenues. It is also possible for a writer's contract to include reversionary rights or other impairments of title in the hands of the publishing company. Through due diligence, one must also carefully examine the life of copyrights. Copyright owners of a song enjoy a limited period of time when they can control the exploitation of such songs. Once the copyright for a song expires, the song goes into the public domain. Anyone can then use the song without getting permission and without paying a royalty. Depending on when a copyright was actually created or first published, the life of a copyright varies and can be difficult to calculate. The U.S. Copyright Act treats songs that were written before 1978 differently from songs written after 1978. The Copyright Act also provides limited opportunities for original creators of songs to reclaim their copyrights. This right to terminate a prior grant by the writer is absolute as long as specific procedures are followed and regardless of any contract language to the contrary. Many years ago, struggling songwriters often gave away or transferred all rights in their songs for little or no compensation and entered into long term, unfavorable publishing contracts with music publishers. The termination provisions of the Copyright Act allow for the original creators to undo some of these bad deals and control the exploitation of the copyrights for the remainder of the copyright term. The grantor of an interest in a copyright should warrant that the copyright is valid and does not infringe on any other copyright. All asserted claims to the contrary, however informally made, should be disclosed and investigated. Even with this diligence, however, it may not be possible to assure totally that a copyright is valid. Remember that song you imagined playing on the radio in your convertible on the way to the country? The performance of the song by an artist generates its own set of royalties separate from the royalties due for the use of the words and music.

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An artist who records a song has a copyright in the performance or sound recording, just as a writer has a copyright in the words and music of a song. 17 U.S.C. 114. But artists almost never work alone in performing a song; the producer, drummer, guitar player and every musician involved can lay a claim to some element of the performance. Also, it takes financial resources to engage the musicians, obtain the use of a recording studio, and promote a record once it is cut. These complexities are why most records are created by artists who are under contract with record companies or labels. Through various agreements, the artists and the others involved in the creation of a record assign their copyrights or other interests to record companies, just as songwriters assign their copyrights to publishing companies. However, deal points between record companies and artists vary much more widely than terms between songwriters and publishing companies. For example, a very popular artist may receive multi-million dollar advances as an inducement to sign with a given record label and will negotiate hard for a high percentage of revenues. The digital or analog recording that is the tangible embodiment of a musical performance is referred to as a master recording, or just master. Because of the assignments described above from all performing parties, the master recordings are usually owned or controlled by the record labels (or in some cases producers). Most record companies register their copyrights in the master recordings with the U.S. Copyright Office, just as publishers do for their words and music. Record companies sign artists to their labels in hopes that the artist becomes the next big thing and earns the label millions of dollars. This dream is seldom realized. Often overlooked is the enormous amount of money that flows out of record labels, never to come pouring back in. In fact, nearly 80 percent of all records released by record labels fail to earn enough money to cover the label's investment. The successful 20 percent must pay for the remaining failures. Of the thousands of new albums released in the United States every year (including major record labels and independents), only a handful achieve platinum (selling more than 1 million units) or gold (selling 500,000 units) status. Although some of the remaining albums surely break even or make some profit, the vast majority are economic failures. Record companies receive royalties from sales of their recordings and share their negotiated portions (usually a percentage of the wholesale or retail price of the recordings after costs) with the performing artists. Advances paid to artists when they sign their recording contracts are usually recouped by the record company before the artists receive royalty checks. In most countries outside the United States, the owners of master recordings receive performance royalties for traditional radio play just as writers do. In the United States, however, other than for the distribution of digital sound recordings (see the Digital Performance Right in Sound Recordings Act of 1995), the Copyright Act does not provide for the owners of master recordings to receive performance royalties for such traditional airplay. In other words, when a record is played on a traditional radio station in the United States, the only benefit to the record companies and their artists is the popularization of their music to support record sales and concerts. 27

Performing artists do have other significant opportunities for income beyond their recording contract royalties. The two primary additional revenue sources are touring and merchandising revenue. A successful artist tour generates substantial income through concert ticket sales and the sale of merchandise (shirts, hats, mugs, photos, etc.) at the concert. With the popularity of the Internet, merchandise sales also occur through fan clubs and artist Web sites. Although alternate income streams can be lucrative, income generated through these ventures is usually divided among an artist's entourage (business manager, personal manager, publicist, assistants, etc.). Lawyers whose clients are acquiring interests in master recordings should perform the same basic title diligence as described above for copyrights of words and music. In addition to ordinary title diligence, the lawyer should be aware that the validity of the record company's copyright to a master rests on the paperwork done when the song was recorded. The primary artist(s) on a record will have economic rights and on occasion control rights, and their contracts must be reviewed. For example, a master recording sale could be negated if it is discovered that the main artist had reserved the absolute right to control the sale of the master. Even the lesser performers on a record may have copyright claims to the performance if they did not sign appropriate work-for-hire documents. Thus, at a minimum, the grantor will provide warranties and representations as to the validity of the copyright in the master recording. Unless the grantor is a substantial and financially stable recording company, the lawyer might also want to inquire as to the company's documentation practices or, for a valuable song, review the actual underlying documents signed at the recording studio. All of the above complexities and more come together to bring you a song. So when you next have a moment with your favorite tune, give a brief thought to the legions of players and the mountains of statutes, case law and contracts that made it possible. But after the passing thought, just relax and enjoy the music. After all, the point of both the business and law of music is to allow you to have fun. How long does a copyright last? For songs created after Jan. 1, 1978, the term of the copyright extends for a period of time equal to the life of the last surviving author plus 70 years. For anonymous or pseudonymous songs or works made for hire, the copyright in such songs lasts 95 years from the year the song was first published or 120 years from the year the song was created, whichever ends first. For songs that were written but not published before Jan. 1, 1978, the term of the copyright extends for a period of time equal to the life of the last surviving author plus 70 years, but the term will not expire earlier than Dec. 31, 2002. If a song was published between Jan. 1, 1978 and Dec. 31, 2002, the copyright in such song will not expire before Dec. 31, 2047. For songs created and published before Jan. 1, 1978, the term of the copyright extends for a period of 95 years from the date the copyright was originally secured.

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[FNa1]. Rolfe is of counsel and Murdock is a member at Boult, Cummings, Conners and Berry, PLC, in Nashville, Tenn. Rolfe's e-mail is jrolfe @boultcummings.com and Murdock's is jmurdock@boultcummings.com.

E.

Pre-1909 Act Caselaw

1.

White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1 (1908)

Mr. Albert Walker for the Connorized Music Company. Mr. George W. Pound for the De Kleist Musical Instrument Mfg. Company and the Rudolph-Wurlitzer Company.Mr. Nathan Burkan for Victor Herbert. Mr. Justice Day delivered the opinion of the court: []. . . The actions were brought to restrain infringement of the copyrights of two certain musical compositions, published in the form of sheet music, entitled respectively, Little Cotton Dolly and Kentucky Babe. The appellee, defendant below, is engaged in the sale of player pianos known as the Apollo, and of perforated rolls of music used in connection therewith. The appellant, as assignee of Adam Geibel, the composer, alleged compliance with the copyright act, and that a copyright was duly obtained by it on or about March 17, 1897. The answer was general in its nature, and upon the testimony adduced a decree was rendered, as stated, in favor of the Apollo Company, defendant below, appellee here. The action was brought under the provisions of the copyright act, 4952 (U. S. Comp. Stat. Supp. 1907, p. 1021), giving to the author, inventor, designer, or proprietor of any book, map, chart, dramatic or musical composition the sole liberty of printing, reprinting, publishing, completing, copying, executing, finishing and vending the same. . . . The appellee is the manufacturer of certain musical instruments adapted to be used with perforated rolls. The testimony discloses that certain of these rolls, used in connection with such instruments, and being connected with the mechanism to which they apply, reproduce in sound the melody recorded in the two pieces of music copyrighted by the appellant. The manufacture of such instruments and the use of such musical rolls has developed rapidly in recent years in this country and abroad. The record discloses that in the year 1902 from seventy to seventy-five thousand of such instruments were in use in the United States and that from one million to one million and a half of such perforated musical rolls, to be more fully described hereafter, were made in this country in that year.

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It is evident that the question involved in the use of such rolls is one of very considerable importance, involving large property interests and closely touching the rights of composers and music publishers. . . . Without entering into a detailed discussion of the mechanical construction of such instruments and rolls, it is enough to say that they are what has become familiar to the public in the form of mechanical attachments to pianos, such as the pianola, and the musical rolls consist of perforated sheets, which are passed over ducts connected with the operating parts of the mechanism in such manner that the same are kept sealed until, by means of perforations in the rolls, air pressure is admitted to the ducts which operate the pneumatic devices to sound the notes. This is done with the aid of an operator, upon whose skill and experience the success of the rendition largely depends. As the roll is drawn over the tracker board the notes are sounded as the perforations admit the atmospheric pressure, the perforations having been so arranged that the effect is to produce the melody or tune for which the roll has been cut. Speaking in a general way, it may be said that these rolls are made in three ways. First. With the score or staff notation before him the arranger, with the aid of a rule or guide and a graduated schedule, marks the position and size of the perforations on a sheet of paper to correspond to the order of notes in the composition. The marked sheet is then passed into the hands of an operator who cuts the apertures, by hand, in the paper. This perforated sheet is inspected and corrected, and when corrected is called the original. This original is used as a stencil and by passing ink rollers over it a pattern is prepared. The stenciled perforations are then cut, producing the master or templet. The master is placed in the perforating machine and reproductions thereof obtained, which are the perforated rolls in question. Expression marks are separately copied on the perforated music sheets by means of rubber stamps. Second. A perforated music roll made by another manufacturer may be used from which to make a new record. Third. By playing upon a piano to which is attached an automatic recording device producing a perforated matrix from which a perforated music roll may be produced. It is evident, therefore, that persons skilled in the art can take such pieces of sheet music in staff notation, and, by means of the proper instruments, make drawings indicating the perforations, which are afterwards outlined and cut upon the rolls in such wise as to reproduce, with the aid of the other mechanism, the music which is recorded in the copyrighted sheets. The learned counsel for the parties to this action advance opposing theories as to the nature and extent of the copyright given by statutory laws enacted by Congress for the protection of copyright, and a determination of which is the true one will go far to decide the rights of the parties in this case. On behalf of the appellant it is insisted that it is the intention of the copyright act to protect the intellectual conception which has resulted in the compilation of notes which, when properly played, produce the melody which is the real invention of the composer. It is insisted that this is the thing which Congress 30

intended to protect, and that the protection covers all means of expression of the order of notes which produce the air or melody which the composer has invented. Music, it is argued, is intended for the ear as writing is for the eye, and that it is the intention of the copyright act to prevent the multiplication of every means of reproducing the music of the composer to the ear. On the other hand, it is contended that while it is true that copyright statutes are intended to reward mental creations or conceptions, that the extent of this protection is a matter of statutory law, and that it has been extended only to the tangible results of mental conception, and that only the tangible thing is dealt with by the law, and its multiplication or reproduction is all that is protected by the statute. Before considering the construction of the statute as an independent question the appellee invokes the doctrine of stare decisis in its favor and it is its contention that in all the cases in which this question has been up for judicial consideration it has been held that such mechanical producers of musical tones as are involved in this case have not been considered to be within the protection of the copyright act; and that, if within the power of Congress to extend protection to such subjects, the uniform holdings have been that it is not intended to include them in the statutory protection given. While it may be that the decisions have not been of that binding character that would enable the appellee to claim the protection of the doctrine of stare decisis to the extent of precluding further consideration of the question, it must be admitted that the decisions so far as brought to our attention in the full discussion had at the bar and upon the briefs have been uniformly to the effect that these perforated rolls operated in connection with mechanical devices for the production of music are not within the copyright act. It was so held in Kennedy v. McTammany, 33 Fed. 584. The decision was written by Judge Colt in the first circuit; the case was subsequently brought to this court, where it was dismissed for failure to print the record. 145 U. S. 643, 36 L. ed. 853, 12 Sup. Ct. Rep. 983. In that case the learned judge said: I cannot convince myself that these perforated strips of paper are copies of sheet music within the meaning of the copyright law. They are not made to be addressed to the eye as sheet music, but they form part of a machine. They are not designed to be used for such purposes as sheet music, nor do they in any sense occupy the same field as sheet music. They are a mechanical invention made for the sole purpose of performing tunes mechanically upon a musical instrument. []. . . . Since these cases were decided Congress has repeatedly had occasion to amend the copyright law. The English cases, the decision of the District of Columbia court of appeals, and Judge Colt's decision must have been well known to the members of Congress; and although the manufacture of mechanical musical instruments had not grown to the proportions which they have since attained, they were well known, and the

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omission of Congress to specifically legislate concerning them might well be taken to be an acquiescence in the judicial construction given to the copyright laws. This country was not a party to the Berne convention of 1886, concerning international copyright, in which it was specifically provided: It is understood that the manufacture and sale of instruments serving to reproduce mechanically the airs of music borrowed from the private domain are not considered as constituting musical infringement. But the proceedings of this convention were doubtless well known to Congress. . . . [] In the last analysis this case turns upon the construction of a statute, for it is perfectly well settled that the protection given to copyrights in this country is wholly statutory. Wheaton v. Peters, 8 Pet. 591, 8 L. ed. 1055; Banks v. Manchester, 128 U. S. 244, 253, 32 L. ed. 425, 429, 9 Sup. Ct. Rep. 36; Thompson v. Hubbard, 131 U. S. 123, 151, 33 L. ed. 76, 86, 9 Sup. Ct. Rep. 710; American Tobacco Co. v. Werckmeister, 207 U. S. 284, ante, 72, 28 Sup. Ct. Rep. 72. Musical compositions have been the subject of copyright protection since the statute of February 3, 1831 (4 Stat. at L. 436, chap. 16), and laws have been passed including them since that time. When we turn to the consideration of the act it seems evident that Congress has dealt with the tangible thing, a copy of which is required to be filed with the Librarian of Congress, and wherever the words are used (copy or copies) they seem to refer to the term in its ordinary sense of indicating reproduction or duplication of the original. Section 4956 (U. S. Comp. Stat. 1901, p. 3407) provides that two copies of a book, map, chart, or musical composition, etc., shall be delivered at the office of the Librarian of Congress. Notice of copyright must be inserted in the several copies of every edition published, if a book, or, if a musical composition, etc., upon some visible portion thereof. Section 4962, copyright act ([18 Stat. at L. 78, chap. 301] U. S. Comp. Stat. 1901, p. 3411). Section 4965 (U. S. Comp. Stat. 1901, p. 3414) provides in part that the infringer shall forfeit . . . every sheet thereof, and . . . one dollar for every sheet of the same found in his possession, etc., evidently referring to musical compositions in sheets. Throughout the act it is apparent that Congress has dealt with the concrete, and not with an abstract, right of property in ideas or mental conceptions. We cannot perceive that the amendment of 4966 by the act of January 6, 1897 ([29 Stat. at L. 481, chap. 4] U. S. Comp. Stat. 1901, p. 3415), providing a penalty for any person publicly performing or representing any dramatic or musical composition for which a copyright has been obtained, can have the effect of enlarging the meaning of the previous sections of the act which were not changed by the amendment. The purpose of the amendment evidently was to put musical compositions on the footing of dramatic compositions, so as to prohibit their public performance. There is no complaint in this case of the public performance of copyrighted music; not is the question involved 32

whether the manufacturers of such perforated music rolls when sold for use in public performance might be held as contributing infringers. This amendment was evidently passed for the specific purpose referred to, and is entitled to little consideration in construing the meaning of the terms of the act theretofore in force. What is meant by a copy? We have already referred to the common understanding of it as a reproduction or duplication of a thing. A definition was given by Bailey, J., in West v. Francis, 5 Barn. & Ald. 743, quoted with approval in Boosey v. Whight, supra. He said: A copy is that which comes so near to the original as to give to every person seeing it the idea created by the original. Various definitions have been given by the experts called in the case. The one which most commends itself to our judgment is perhaps as clear as can be made, and defines a copy of a musical composition to be a written or printed record of it in intelligible notation. It may be true that in a broad sense a mechanical instrument which reproduces a tune copies it; but this is a strained and artificial meaning. When the combination of musical sounds is reproduced to the ear it is the original tune as conceived by the author which is heard. These musical tones are not a copy which appeals to the eye. In no sense can musical sounds which reach us through the sense of hearing be said to be copies, as that term is generally understood, and as we believe it was intended to be understood in the statutes under consideration. A musical composition is an intellectual creation which first exists in the mind of the composer; he may play it for the first time upon an instrument. It is not susceptible of being copied until it has been put in a form which others can see and read. The statute has not provided for the protection of the intellectual conception apart from the thing produced, however meritorious such conception may be, but has provided for the making and filing of a tangible thing, against the publication and duplication of which it is the purpose of the statute to protect the composer. Also it may be noted in this connection that if the broad construction of publishing and copying contended for by the appellants is to be given to this statute it would seem equally applicable to the cylinder of a music box, with its mechanical arrangement for the reproduction of melodious sounds, or the record of the graphophone, or to the pipe organ operated by devices similar to those in use in the pianola. All these instruments were well known when these various copyright acts were passed. Can it be that it was the intention of Congress to permit them to be held as infringements and suppressed by injunctions? After all, what is the perforated roll? The fact is clearly established in the testimony in this case that even those skilled in the making of these rolls are unable to read them as musical compositions, as those in staff notations are read by the performer. It is true that there is some testimony to the effect that great skill and patience might enable the operator to read this record as he could a piece of music written in staff notation. But the weight of the testimony is emphatically the other way, and they are not intended to be read as an ordinary piece of sheet music, which, to those skilled in the art, conveys, by reading, in playing or singing, definite impressions of the melody. 33

These perforated rolls are parts of a machine which, when duly applied and properly operated in connection with the mechanism to which they are adapted, produce musical tones in harmonious combination. But we cannot think that they are copies within the meaning of the copyright act. It may be true that the use of these perforated rolls, in the absence of statutory protection, enables the manufacturers thereof to enjoy the use of musical compositions for which they pay no value. But such considerations properly address themselves to the legislative, and not to the judicial, branch of the government. As the act of Congress now stands we believe it does not include these records as copies or publications of the copyrighted music involved in these cases. The decrees of the Circuit Court of Appeals are affirmed. Mr. Justice Holmes, concurring specially: In view of the facts and opinions in this country and abroad to which my brother Day has called attention, I do not feel justified in dissenting from the judgment of the court, but the result is to give to copyright less scope than its rational significance and the ground on which it is granted seem to me to demand. Therefore I desire to add a few words to what he has said. The notion of property starts, I suppose, from confirmed possession of a tangible object, and consists in the right to exclude others from interference with the more or less free doing with it as one wills. But in copyright property has reached a more abstract expression. The right to exclude is not directed to an object in possession or owned, but is in vacuo, so to speak. It restrains the spontaneity of men where, but for it, there would be nothing of any kind to hinder their doing as they saw fit. It is a prohibition of conduct remote from the persons or tangibles of the party having the right. It may be infringed a thousand miles from the owner and without his ever becoming aware of the wrong. It is a right which could not be recognized or endured for more than a limited time and therefore, I may remark, in passing, it is one which hardly can be conceived except as a product of statute, as the authorities now agree. The ground of this extraordinary right is that the person to whom it is given has invented some new collocation of visible or audible points, -of lines, colors, sounds, or words. The restraint is directed against reproducing this collocation, although, but for the invention and the statute, anyone would be free to combine the contents of the dictionary, the elements of the spectrum, or the notes of the gamut in any way that he had the wit to devise. The restriction is confined to the specific form, to the collocation devised, of course, but one would expect that, if it was to be protected at all, that collocation would be protected according to what was its essence. One would expect the protection to be coextensive not only with the invention, which, though free to all, only one had the ability to achieve, but with the possibility of reproducing the result which gives to the 34

invention its meaning and worth. A musical composition is a rational collocation of sounds apart from concepts, reduced to a tangible expression from which the collocation can be reproduced either with or without continuous human intervention. On principle anything that mechanically reproduces that collocation of sounds ought to be held a copy, or, if the statute is too narrow, ought to be made so by a further act, except so far as some extraneous consideration of policy may oppose. What license may be implied from a sale of the copyrighted article is a different and harder question, but I leave it untouched, as license is not relied upon as a ground for the judgment of the court. 2. Notes and Questions

The foregoing materials provide an introduction to several themes that you will see repeating themselves throughout the development of music copyright law and other legal issues affecting the music industry through the current time, as well as an introduction to the manner in which the structure of the law (i.e., the bundles of rights protected by the law) has affected the structure of the music industry. Try to identify some of these themes in the White-Smith Music case. For example, what issues do you see the court struggling with in this case? Do you see any analogies to issues that courts struggle with in today's disputes over the protections granted to various participants in the music industry? What was the basis for the Court's decision in this case? Do you think that the Court's view of the issues raised by this 1908 case is consistent with a propertyrights model of music as discussed in the Carroll article, or does the Court's approach reflect a different model?

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II.

Second Class: Music Law at the Dawn of the Modern Music Industry and the 1909 Copyright Act

A.

Relevant Portions of the 1909 Copyright Act: Sections 1, 4, 5, 25

AN ACT TO AMEND AND CONSOLIDATE THE ACTS RESPECTING COPYRIGHT. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, [SEC. 1] That any person entitled thereto, upon complying with the provisions of this Act, shall have the exclusive right: (a) to print, reprint, publish, copy, and vend the copyrighted work; (b) To translate the copyrighted work into other languages or dialects or make any other version thereof if it be a literary work; to dramatize it if it be a nondramatic work; to convert it into a novel or other nondramatic work if it be a drama; to arrange or adapt it if it be a musical work; to complete, execute, and finish it if it be a model or design for a work of art; (c) To deliver or authorize the delivery of the copyrighted work in public for profit if it be a lecture, sermon, address, or similar production; (d) To perform or represent the copyrighted work publicly if it be a drama or if it be a dramatic work and not reproduced in copies for sale, to vend any manuscript form, etc. or any record whatsoever thereof; to make or to procure the making of any transcription or record thereof by or from which, in whole or in part, it may in any manner or by any method be exhibited, performed, represented, produced, or reproduced; and to exhibit, perform, represent, produce, or reproduce it in any manner or by any method whatsoever; ( e) To perform the copyrighted work publicly for profit if it be a musical composition and for the purpose of public performance for profit; and for the purposes set forth in subsection (a) hereof, to make any arrangement or setting of it or of the melody of it in any system of notation or any form of record in which the thought of an author may be recorded and from which it may be read or reproduced: provided, That the provisions of this Act, so far as they secure copyright controlling the parts of instruments serving to reproduce mechanically the musical work, shall 36

include only compositions published and copyrighted after this Act goes into effect, and shall not include the works of a foreign author or composer unless the foreign state or nation of which such author or composer is a citizen or subject grants, either by treaty, convention, agreement, or law, to citizens of the United States similar rights: And provided further, and as a condition of extending the copyright control to such mechanical reproductions, That whenever the owner of a musical copyright has used or permitted or knowingly acquiesced in the use of the copyrighted work upon the parts of instruments serving to reproduce mechanically the musical work, any other person may make similar use of the copyrighted work upon the payment to the copyright proprietor of a royalty of two cents on each such part manufactured, to be paid by the manufacturer thereof; and the copyright proprietor may require, and if the manufacturer shall furnish, a report under oath on the twentieth day of each month on the number of parts of instruments manufactured during the previous month serving to reproduce mechanically said musical work, and royalties shall be due on the parts manufactured during any month upon the twentieth of the next succeeding month. The payment of the royalty provided for by this section shall free the articles or devices for which such royalty has been paid from further contribution to the copyright except in case of public performance for profit: And provided further, That it shall be the duty of the copyright owner, if he uses the musical composition himself for the manufacture of parts of instruments serving to reproduce mechanically the musical work , or licenses others to do so, to file notice thereof, accompanied by a recording fee, in the copyright office, and any failure to file such notice shall be a complete defense to any suit, action, or proceeding for any infringement of such copyright. In case of the failure of such manufacturer to pay to the copyright proprietor within thirty days after demand in writing the full sum of royalties due at said rate at the date of such demand the court may award taxable costs to the plaintiff and a reasonable counsel fee, and the court may, in its discretion, enter judgment therein for any sum in addition over the amount found to be due as royalty in accordance with the terms of this Act, not exceeding three times such amount. The reproduction or rendition of a musical composition by or upon coinoperated 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. .... SEC. 4. That the works for which copyright may be secured under this Act shall include all the writings of an author. ....

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SEC. 25. That if any person shall infringe the copyright in any work protected under the copyright laws of the United States such person shall be liable: .... (e) Whenever the owner of a musical copyright has used or permitted the use of the copyrighted work upon the parts of musical instruments serving to reproduce mechanically the musical work, then in case of infringement of such copyright by the unauthorized manufacture, use, or sale of interchangeable parts, such as disks, rolls, bands, or cylinders for use in mechanical music-producing machines adapted to reproduce the copyrighted music, no criminal action shall be brought, but in a civil action an injunction may be granted upon such terms as the court may impose, and the plaintiff shall be entitled to recover in lieu of profits and damages a royalty as provided in section one, subsection (e), of this Act: Provided also, That whenever any person, in the absence of a license agreement, intends to use a copyrighted musical composition upon the parts of instruments serving to reproduce mechanically the musical work, relying upon the compulsory license provision of this Act, he shall serve notice of such intention, by registered mall, upon the copyright proprietor at his last address disclosed by the records of the copyright office, sending to the copyright office a duplicate of such notice; and in case of his failure so to do the court may, in its discretion, in addition to sums hereinabove mentioned, award the complainant a further sum, not to exceed three times the amount provided by section one, subsection (e), by way of damages, and not as a penalty, and also a temporary injunction until the full award is paid. Rules and regulations for practice and procedure under this section shall be prescribed by the Supreme Court of the United States.

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B. Early 1909-Act Cases: Duplication, Distribution, and Performance Right Issues in Sound Recordings and Compositions

1. Duplication of Recordings: Fonotipia Ltd. v. Bradley, 171 F. 951 (E.D.N.Y. Cir. 1909) CHATFIELD, District Judge. [] The complainants at the present time are producing and putting upon the market records of vocal and instrumental music, for use upon machines for the reproduction of sound, and constructed in a form suitable for operation with these records in the flat and circular or disc form described in the patent to Berliner, No. 534,543, February 19, 1895 (Victor v. Amer. Grapho. Co., 145 Fed. 350, 76 C.C.A. 180), and Jones, No. 688,739, December 10, 1901 (Amer. Grapho. Co. v. Universal Co., 151 Fed. 595, 81 C.C.A. 13 9). It is unnecessary to consider in detail the machines made by either company, further than to say that those manufactured by the complainant the Victor Talking Machine Company are known generally as the Victor talking machines, and those put upon the market by the Columbia Company are called graphophones, and the discs described can be interchangeably used upon either type of instrument. The discs themselves, as at present made, are of some such substance as hard rubber, and are said to be made by causing the music to be sung or played into a receiving instrument, which records the waves of sound upon a disc properly prepared, which, in turn, by an electroplating process, is used to yield a matrix of metal. From this matrix numberless reproductions, substantially duplicates even in minute details of the original record, are produced by processes perfected by each company, and these reproduced discs, when used upon the talking machine or graphophone, turn back, by means of the diaphragm of the instrument, the lines of the record into sound waves, which are the equivalent of those originally sung or played. In the case of the Victor Company, the discs sold by it within the United States are plainly marked with notice of the patent, and also with notice that the disc is sold for use only upon a talking machine, for the reproduction of sound. The price at which the discs are to be sold is also printed upon each disc, and the maintenance of this price is made a condition of the sale under license. Thus actual notice is given to each purchaser or user of the Victor Company's discs, of the conditions under which they have been sold, and that the article has to do with a patented product. . . . [] Particular attention has been called to the trade-mark of the Victor Company, which, both as a trade-mark and as an advertisement, in the shape of a dog listening to the sounds from a talking machine horn, and labeled His master's voice, has become

39

familiar to the public. The methods employed by all of the complainant companies, the uniform care and excellent reproducing qualities of their products (both machines and records), has educated the public to expect the successful reproduction of music of a high standard of quality in the reproduction, and, as shown by the record, the grade of goods produced by the complainant companies upholds the standards which they have established. The public is protected in its purchases by the evenness and excellence of the output. In addition to the expense and the rights represented by the business indicated, all three of the complainant companies have entered into separate contracts with individual singers and musicians, and particularly in the case of singers under contracts with the so-called Grand Opera Companies of New York, Paris, London, Berlin, Milan, etc. Under these contracts with artists able to command large prices, the initial cost of producing the record is great, and the companies are under an agreement to pay a royalty for each record produced from the original matrix, thus furnishing a continuing contract and expense, of which the benefit is going to the singer. . . . . The court must also take into account, in any such matter as the present, not only questions of public policy, but questions of public benefit, and it is evident, from the common use of various forms of talking machines or phonographs and graphophones, that the better class of music is brought within the observation and study of many persons who would have neither time nor opportunity to become familiar with it in other ways. The reproduction of songs by famous singers and artists is both educational and beneficial to the people as a whole, and the court cannot but take notice of the fact that such music has an educational side, and appeals to substantially every one, even though they be unconscious of this result. [] . . . . The defendant has been for some months advertising by circular letter and in other ways his ability to sell records of the Continental Record Company, stating in these advertisements that the records are sold at prices not more than half those now charged for the original records. The advertisements claim that the records themselves are pressed upon the very highest class of material finished equal to the original, that the character of the record itself is identical with the original record, and that experts who have listened to samples are unable to determine between the original and the copy. The catalogue contains a statement that the records offered by Bradley are all duplicates from the original records made by the artists whose names are used herein. It is apparent from the explanation which has been already made that the commercial records sold by the complainants are copies or duplicates, in the sense that they are made from a matrix or metallic plate, but are in no sense duplicate originals; that is, actually made by the sound waves of the singer at the time of the original song. In this sense the defendant's records, if made from one of the commercial records of the complainants, may be a duplicate in the sense of being an exact reproduction, even to such peculiarities as noticeable marks in the lines upon the disc and in the position and relative location of 40

those marks or lines; but the defendant's records are not duplicates, even in the sense that they are removed from the original singing by but one reproduction from a matrix. The testimony shows that the defendant the Continental Record Company makes its records from commercial discs of the complainants and must produce a second matrix before the copies can be pressed or stamped. [] . . . . But a more serious question comes from the testimony offered by the discs presented in the case themselves. If the defendant is selling to customers records reproduced by processes of the Continental Record Company, by means of discs purchased in the market by that company for the purpose, and if he advertises and guarantees to his customers that the Continental records are duplicates equal in all respects, including composition and finish, and that it is impossible to distinguish between the Continental records and those produced by the complainants, we have a question of fact presented in which the public is interested, namely, do the records submitted as evidence in the case lead to any determination upon the question of deception or imitation of the product, and the resultant benefit to the imitator, with corresponding injury to the imitated, by the results of the sales, and by the effect upon future sales if the product of the imitation be unsatisfactory? It may be argued that the imitation would go out of the market and be removed from interference with the original if the product proved unsatisfactory; but it would seem that business reputation and excellence of product are entitled to some protection from imitations which discourage further use and prove unsatisfactory as a whole, because the result of the sale of such a product must necessarily affect adversely the opinion of the very class of customers which is sought to be enlarged by the sale of a satisfactory product. A comparison, in order to observe points of similarity between the records put in evidence by the complainants, and made by themselves, with the records produced by the defendant and introduced as purchases from him, leads irresistibly to the conclusion that the material used in the Continental Record Company's discs is greatly inferior, contains imperfections which cause scratchings and irritating sounds, is subject to warp, and is so much softer or destructible in character that the commercial value of the defendant's records is much less than that of the complainant companies' records. Actual comparison of the discs warrants the finding that the Continental records are not in every way the equal, even when played upon the same machine, of the complainants' records, and it is impossible to hold that they are duplicates in the sense that they cannot, in most cases, be distinguished from the genuine, or that the imitation product is the duplicate in the sense of being the equal of the original. The defendant's records do not show the use of as good material in the discs, nor as much durability and freedom from warping as those of the complainants, and a comparison shows in many instances a dulling or far away effect in the defendant's discs.

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But before determining whether the complainants can have any remedy under the doctrine of unfair competition, certain questions must be disposed of, which cannot control, and which will complicate the issue if not separately taken up at the outset. First, the defendant contends that the complainants should be compelled to rely upon their patent rights; and inasmuch as their rights under their patents would prevent infringing, making, and sale of discs of the form in question, if their patents be valid, the defendant attempts to urge the converse of the proposition, and asks the court to dismiss this action on the ground that the complainants have an adequate remedy, not at law, but in equity, for infringement of patent. This would necessitate the finding of an additional proposition, namely, that the complainants are not entitled to a decree based upon the doctrine of unfair competition, if they could accomplish the same results by means of an injunction suit upon their patents; but if they should fail in upholding the validity of their patents or proving infringement, or when their patents expire, we should again be facing the same situation now presented, namely, that the doctrine of unfair competition is claimed by the defendant to be limited to cases in which an intent to deceive can be found, either because of misrepresentations or imitation of the trade-name or outward appearance of the article over which the competition exists, or that some special quality in the nature of the product renders the sale of the competing article unfair competition, such as was shown in the stock-ticker, trading-stamp, or railroad-ticket cases, referred to below. The license system of the complainant companies, as shown by the notices printed upon the discs when sold, is based upon patent rights, and upon the legality of the use of patented articles in order to give the person owning the patent the full enjoyment of the monopoly secured thereby. [] . . . . It is also contended by the defendant that the license agreement of the Victor Company, and its attempt to restrict or control the retail price at which its records shall be sold, by printing a notice upon its discs that the record is sold only to be retailed at a certain rate, and an agreement which has been entered into between the Victor Company and the Columbia Company, are all in restraint of trade and contrary to the so-called anti-trust law, forbidding monopolies, enacted by the Congress of the United States, on the 2d day of July, 1890 (Act July 2, 1890, c. 647, 26 Stat. 209 (U.S. Comp. St. 1901, p. 3200)). But, if we are dealing with a patented product a monopoly, in the sense of right to control the sale of the product and the price which shall be asked therefor, is admittedly within the legal benefits conveyed to the patentee by the issuance of the patent. Bement v. National Harrow Co., 186 U.S. 70, 22 Sup.Ct. 747, 46 L.Ed. 1058. . . . [] But, as has been already said, the question of imitation of trade-mark cannot control the present case and we must therefore consider the broad question presented by the issue, namely, whether the taking of property in the shape of valuable ideas and products, by mechanical imitation or reproduction, is susceptible of notice by a court of equity, and whether any remedy therefor can exist apart from the questions of patent, trade-mark, and intentional deception or imitation and deceitful substitution of the product. 42

[] . . . . We therefore reach the broad question of the power of a court of equity to secure to an individual by injunction the full enjoyment of both corporeal and incorporeal rights in property created by him or at his expense, and capable of a taking by another, where such taking either diminishes or destroys the enjoyment of those rights by the owner and diverts a part of the enjoyment or profits from the rights to the one complained of. In the case of Victor Talking Mach. Co. v. Armstrong, supra, Judge Lacombe says: The complainant contends that defendants have no right to take the discs which it produced as records of a piece of music specially executed, and reproduce from them duplicates thereof. The novel and interesting question thus presented need not now be discussed. No case cited and decided strictly upon the question of unfair competition, so far as called to the attention of the court, has ever granted relief in instances outside of imitation or deception, and where the public would be likely to be misled by the points of similarity involved; but equity has granted relief in certain typical lines of cases where the doctrine of unfair competition seems to have been the guide to the decision, but where the basis upon which the relief was granted was the unfair taking of the complainant's property, rather than the deception of the purchaser, or the imitation of a patented or copyrighted article, or a registered trade-mark or trade-name. . . . [] The present case is extremely like these just considered in principle. It is almost as if the court should be asked to enjoin individuals from theft, upon the ground that the criminal statutes did not make the taking of the particular kind of property in question larceny, and in cases where equitable relief was therefore appealed to because of the absence of any adequate remedy at law. The principle involved is far-reaching, especially in that it carries the scope of equitable jurisdiction into matters frequently considered to be purely the result of business competition, and which, even if in themselves morally or financially wrong, are supposed to be without remedy where no contractual relations have existed from which suits for damages could arise. Various statutes have been passed in an attempt by legislation to protect certain classes of rights, such as the recording acts of the various states, and the lien laws of different jurisdictions. The patent, trade-mark, and copyright laws of different governments and the history of legislation as well as law, prove that where an act is admittedly wrong in the eyes of the public, and where the interests of individuals are being interfered with by commissions of the acts in question, legislation in the appropriate jurisdiction usually follows, and a legal remedy is created; but such legal remedies must be with relation to a specific class of acts. The jurisdiction of a court of equity has always been invoked to prevent the continuance of acts of injury to property and to personal rights generally, where the law had not provided a specific legal remedy, 43

and it would seem that the appropriation of what has come to be recognized as property rights or incorporeal interests in material objects, out of which pecuniary profits can fairly be secured, may properly, in certain kinds of cases, be protected by legislation; but such intangible or abstract property rights would seem to have claims upon the protection of equity, where the ground for legislation is uncertain or difficult of determination, and where the principles of equity plainly apply. The so-called common-law right in literary property before its publication has long been recognized in the law. After the passage of legislation, literary property was secured, even in the published article, by the various copyright statutes of the different nations. When such a copyright statute has been passed, all property rights in the published article must be secured and controlled by strict compliance with the statute. It has been held that under the copyright law in effect prior to the 1st day of July, 1909, musical compositions, unless transcribed in print or musical characters, upon paper, were incapable of copyright (White-Smith Music Pub. Co. v. Apollo Co., 209 U.S. 1, 28 Sup.Ct. 319, 52 L.Ed. 655). Since the beginning of the present action, the copyright law has been amended, and since the 1st day of July, 1909, any form of recording or transcribing a musical composition, or rendition of such composition, has been capable of registration, and the property rights therein secured under the copyright statute (Act March 4, 1909, c. 320, 35 Stat. 1075). It would seem therefore that the questions raised in the present case may be avoided as to future compositions by copyrighting the original rendition of the song, provided the singer has the right to use it for that purpose, and the disc record by which the rendition is preserved; but question will still remain as to the records produced prior to the present copyright law, and serious discussion may arise over the right obtained, for instance, by a grand opera singer who files a copyright for the resinging of a song already recorded by him or her, and sold to the public upon a disc record. With that we have nothing to do here, and the relief asked in this case would protect those who have already sung or played compositions having a pecuniary value, because of their musical excellence, and also the persons who have invested capital and labor in putting a valuable product upon the market. The education of the public by the dissemination of good music is an object worthy of protection, and it is apparent that such results could not be attained if the production of the original records was stopped by the wrongful taking of both product and profit by any one who could produce sound discs free from the expense of obtaining the original record. It has been said in the case of American Washboard Co. v. Saginaw Mfg. Co., 103 Fed. 281, 43 C.C.A. 233, 50 L.R.A. 609, that the basis of recovery is the damage to property rights of the complainant, rather than the deception of the public. It is from this contended: The better the imitation, the greater reason there is for issuing an injunction. And, in the sense that the marketable qualities of an article can be appropriated by a good substitute, this statement is true; but it necessarily follows that the injury to reputation 44

and to the demand for the article would be greater if the imitations do not prove satisfactory, and there be no way of informing the public that the genuine is preferable or superior. In the case of sound discs such as those involved in the present action, a careful comparison of the records is necessary to emphasize the superiority of the discs made with better material, more careful and experienced workmanship, and improved methods; and it is also evident that to the untrained ear such differences cannot be carried in mind and appreciated, unless the opportunity for direct comparison be immediately present. An actual playing of the discs introduced as evidence in this case illustrates the point involved, for the testimony and also experiments show that in some cases the records sold by the defendant are with difficulty distinguished from those sold by the complainant, unless one is played immediately following the other and under the same circumstances, so that comparison would be fair. Reference has been made to the rights of a photographer who should make a film for moving pictures, of some historical or unique occasion, and should sell the film to parties who should reproduce it in a moving-picture machine. Other parties might make pictures from the film, or from the exposures, and a question, in some respects, similar to the present, might be involved. A dressmaking establishment might employ high-priced designers, and their product might be copied, and the designs thus appropriated. Architects might build houses and utilize extremely valuable methods and ideas, and others building houses might follow these ideas. Sculptors might carve statutes of great commercial value, and stone carvers might copy these sculptures. It cannot now be determined how far such appropriation of ideas could be prevented; but it would seem that where a product is placed upon the market, under advertisement and statement that the substitute or imitating product is a duplicate of the original, and where the commercial value of the imitation lies in the fact that it takes advantage of and appropriates to itself the commercial qualities, reputation, and salable properties of the original, equity should grant relief. That is the particular proposition presented in the present case, and to that extent it seems to the court that the principles applied in the stock-ticker and similar cases above recited should be followed, and relief by injunction granted.

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2. Copying Perforated Piano Rolls: Aeolian Co. v. Royal Music Roll Co., 196 F. 926 (W.D.N.Y. 1912) HAZEL, District Judge. The question raised in this case involves the right of the complainant, the Aeolian Company, under the copyright act of March 4, 1909, to restrain the defendant, the Royal Music Roll Company, from copying and duplicating perforated music rolls or records manufactured by the former. While, under the provisions of the copyright law, such music rolls or records are not strictly matters of copyright, Congress in passing the enactment evidently intended to protect copyright proprietors in their right to their productions, and to give them an exclusive right to print, publish, and vend the same. If the copyrighted work be a musical composition, the owner, under the provisions of the statute, after complying therewith, has the exclusive right to perform it publicly for profit, and may, if he chooses so to do, make an arrangement or setting of the musical composition, published or copyrighted after the passage of the act, for mechanical reproduction. In this manner the copyright owner retains control of the right to manufacture music rolls, and the mechanical reproduction of such music or composition is optional with him. If he elects to mechanically reproduce it, or knowingly acquiesces in such use of reproduction by another, any other person, the act says, may make similar use of the copyrighted work upon payment of a royalty. The bill avers that, prior to making the music rolls or records in question, complainant was given permission and license to mechanically reproduce the copyrighted composition and to make perforated rolls therefrom. By such permission or license the owners of the copyright transferred to the licensees their right to manufacture perforated rolls, or parts, or instruments to mechanically reproduce the copyrighted music. The provision of the statute (section 1e) that any other person may make similar use of the copyrighted work becomes automatically operative by the grant of the license; but the subsequent user does not thereby secure the right to copy the perforated rolls or records. He cannot avail himself of the skill and labor of the original manufacturer of the perforated roll or record by copying or duplicating the same, but must resort to the copyrighted composition or sheet music, and not pirate the work of a competitor who has made an original perforated roll. The defendant contends there is no provision in the copyright act for an action of this kind by the manufacturer of perforated rolls or records- a licensee of the copyright proprietor- and that the license herein granted conveyed nothing beyond the right to use the copyrighted music. This court, however, is of a different opinion and thinks that Congress gave to the owner of the copyrighted work and to his licensee the right to maintain an action such as this. By section 36 of the copyright act it is provided that any party aggrieved may file a bill in equity and a Circuit (now District) Court of the United

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States may grant an injunction to prevent and restrain the violation of any rights secured by such act. To effect the purpose intended by Congress, this provision must be given reasonable construction (Bobbs-Merrill Co. v. Straus et al., 210 U.S. 339, 28 Sup.Ct. 722, 52 L.Ed. 1086), and to give it such construction requires holding that the phrase any party aggrieved includes a licensee who has obtained a right to manufacture and sell perforated rolls. The phrase is not limited merely to owners of the copyright, but is broad enough to include licensees or others having permission from the owner of the copyright to mechanically reproduce the musical composition. The allegation charging copying of the rolls by the defendant is not denied. The motion for temporary injunction is granted.

3. Compulsory License and Lyrics: Standard Music Roll Co. v. F. A. Mills, Inc., 241 F. 360 (3d Cir. 1917)

McPHERSON, Circuit Judge. This is an appeal from the decree of the District Court adjudging the Standard Music Roll Company to be an infringer of the plaintiff's copyright in the words of the musical composition entitled Waiting for the Robert E. Lee, and awarding damages and costs. 223 Fed. 849. There are no facts in dispute. In May, 1912, the words and music of the song were copyrighted together as a musical composition under the act of 1909, and in June the Mills Company (the present owner) licensed the Standard Company to use the copyrighted musical composition in the manufacture of its sound records in any form whatsoever, apparently granting a similar license to at least one other person- the Vocalstyle Company- but filing no notice of user under section 1e of the statute. The Standard Company manufactured and sold perforated music rolls adapted to reproduce the music covered by the copyright, and also for a time printed the words of the song on separate slips of paper, and inclosed these slips in the boxes containing the rolls, making no charge for the words. The royalty agreed upon, and actually paid, was two cents for every perforated roll adapted to reproduce the music. Two questions are presented for decision: (1) What was the scope of the license? and (2) what effect, if any, should be given to the failure to file a notice of user? 1. The Scope of the License. The material parts of that instrument are as follows- the Mills Company being described as the Publisher, and the Standard Company as the Company: Consent D- Rolls for Automatic Instruments.

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Agreement made, etc. Whereas, the Publisher is the owner of the copyright of the musical composition, entitled 'Waiting for the Robert E. Lee, secured by it subsequent to July 1, 1909; and Whereas, the Company desires the right, privilege, and authority to use the . . .[blank] of the said copyrighted musical composition in the manufacture of its music rolls, and the Publisher is agreeable to grant such right, privilege, and authority, subject to the terms and conditions hereinafter set forth: Now therefore witnesseth: (a) The Publisher hereby gives to the Company the right, privilege, and authority to use the said copyrighted musical composition in the manufacture of its sound records in any form whatsoever, and hereby consents to extending the original copyright of said musical composition to the instruments serving to reproduce mechanically the said musical work. (b) The Company hereby agrees to pay to the Publisher two cents for every record and copy of record manufactured by it serving to reproduce mechanically the said musical work. (c) The Company hereby agrees to render to the Publisher quarterly statements, the 1st of January, the 1st of April, the 1st of July, and the 1st of October, of all records and copies of records serving to reproduce mechanically the said musical work, manufactured by it during the preceding quarter. (d) It is expressly understood that the said musical composition shall not be used in connection with a musical medley for band or orchestra, or other medley arrangements, without the written consent of the Publisher first had and obtained. In our opinion, little need be added to the ordinary and natural meaning of this agreement. We decided in Witmark v. Roll Co. (C.A. 3d) 221 Fed. 376, 137 C.C.A. 184, that under the copyright legislation before 1909 a manufacturer of automatic music rolls might lawfully inclose with the roll a printed slip containing the words of a song copyrighted as a musical composition, unless the words had been separately copyrighted as a book. But section 3 of the act of 1909 changed the law in this respect, declaring: That the copyright provided by this act shall protect all the copyrightable component parts of the work copyrighted. * * * The copyright upon composite works * * * shall give to the proprietor thereof all the rights in respect thereto which he would have if each part were individually copyrighted under this act.

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Whenever, therefore, a song is now copyrighted as a musical composition, both the words and the music are protected; and, as these do not constitute an indivisible whole, the owner may limit the use of his copyright either to the music or to the words, or he may allow both to be used. That the foregoing writing was intended merely to allow the Standard Company to reproduce mechanically the musical sounds of the song in question, we see no reason to doubt. On this subject the recital of what the Company desires is silent- the blank being left unfilled- and the Publisher confined the grant to such use of the composition as may be needed in the manufacture of (the Company's) sound records in any form whatsoever. In this action, we are only concerned with automatic music rolls, and as these are not adapted to reproduce words, we see no sufficient ground for debate. This view is emphasized by the provisions extending the copyright to the instruments serving to reproduce mechanically the said musical work, and describing the records or copies of records as manufactured for the purpose of reproducing the said musical work mechanically. Indeed, we think the meaning of the license is so clear that merely to state it may well take the place of an argument. 2. The second question arises under the last two provisos of section 1, clause (e) [of the 1909 Act]. By that clause the right is given: To perform the copyrighted work publicly for profit if it be a musical composition and for the purpose of public performance for profit; and for the purposes set forth in subsection (a) hereof- i.e. to print, reprint, publish, copy, and vend the copyrighted work- to make any arrangement or setting of it or of the melody of it in any system of notation or any form of record in which the thought of an author may be recorded and from which it may be read or reproduced. * * * And provided further, and as a condition of extending the copyright control to such mechanical reproductions, that whenever the owner of a musical copyright has used or permitted or knowingly acquiesced in the use of the copyrighted work upon the parts of instruments serving to reproduce mechanically the musical work, any other person may make similar use of the copyrighted work upon the payment to the copyright proprietor of a royalty of two cents on each such part manufactured, to be paid by the manufacturer thereof. * * * The payment of the royalty provided for by this section shall free the articles or devices for which such royalty has been paid from further contribution to the copyright except in case of public performance for profit: And provided further, that it shall be the duty of the copyright owner, if he uses the musical composition himself for the manufacture of parts of instruments serving to reproduce mechanically the musical work, or licenses other to do so, to file notice thereof, accompanied by a recording fee, in the copyright office, and any failure to file 49

such notice shall be a complete defense to any suit, action, or proceeding for any infringement of such copyright. The object of these provisos seems to be the prevention of monopoly or favoritism in granting the right to reproduce a musical work mechanically. If the owner authorizes one person to reproduce the work mechanically, other persons also may reproduce it in a similar mechanical manner, subject to the payment of the statutory royalty. And, in order to compel the owner to make the license public by filing a notice in the office at Washington, the statute provides as a penalty that failure to file shall be a complete defense to any suit, action, or proceeding for any infringement of such copyright. What does such copyright refer to? Manifestly, as we think, some particular right to reproduce the musical work mechanically. Just how the reproduction is to be made, and whether it is to be confined to the music or shall extend to the words also, is in the first instance left for the owner to determine. But after he has determined it, and has granted a license to one person, he thereby opens the field to all others to do the same, or a similar, thing. If he license one person to reproduce both words and music by the phonograph method, other persons may reproduce them both by using the phonograph. If he license one person to reproduce the music by the automatic roll, others also may use the roll, but they do not thereby acquire the right to print the words. In brief, such copyright means the particular right covering mechanical reproduction that happens to be in controversyin the present case, the right to reproduce, not the words but the music, mechanically. The Standard Company is not charged with infringing such copyright; it is charged with infringing the copyright on the words granted under clause (a), and to this charge clause (e) affords no defense under the facts in proof, for the other licensee, the Vocalstyle Company had no right to reproduce the words, but was merely allowed to reproduce the music mechanically, and in fact employed the same method used by the Standard Company. The decree is affirmed. 4. Current Related Issue re Compulsory License and Lyrics: Leadsinger, Inc. v. BMG Music Publishing, 512 F.3d 522 (9th Cir. 2008) [skim this case]

MILAN D. SMITH, JR., Circuit Judge: This case requires us to determine how the Copyright Act, 17 U.S.C. 101-1332, applies to karaoke devices that enable individuals to sing along to recordings of musical compositions, which is a matter of first impression in this circuit. In the district court, Plaintiff-Appellant Leadsinger, Inc., a karaoke device manufacturer, filed a complaint for declaratory judgment against music publishers, Defendants-Appellees BMG Music Publishing and Zomba Enterprises, Inc. (BMG). Leadsinger sought a declaration that it is entitled to print or display song lyrics in real time with song recordings as long as it obtains a compulsory mechanical license under 17 U.S.C. 115, or that it is entitled to do 50

so under the fair use doctrine, 17 U.S.C. 107. The district court dismissed the complaint without leave to amend for failure to state a claim. We affirm. I. FACTUAL AND PROCEDURAL BACKGROUND Karaoke devices necessarily involve copyrighted works because both musical compositions and their accompanying song lyrics are essential to their operation. BMG owns or administers copyrights in musical compositions and through its licensing agent, the Harry Fox Agency, has issued to Leadsinger compulsory mechanical licenses to copyrighted musical compositions under 115 of the Copyright Act. In addition to the mechanical fee required to secure a compulsory license, BMG has demanded that Leadsinger and other karaoke companies pay a lyric reprint fee and a synchronization fee. Leadsinger has refused to pay these additional fees and filed for declaratory judgment to resolve whether it has the right to visually display song lyrics in real time with song recordings, as well as print song lyrics, without holding anything more than the 115 compulsory licenses it already possesses. In its complaint, Leadsinger describes the karaoke device it manufactures as an all-inone microphone player that has recorded songs imbedded in a microchip in the microphone. When the microphone is plugged into a television, the lyrics of the song appear on the television screen in real time as the song is playing, enabling the consumer to sing along with the lyrics. Though most karaoke companies put their recordings on cassettes, compact discs, or use a compact disc + graphic (CD+G) or DVD format, these other karaoke devices, much like Leadsinger's, display lyrics visually when played in a device that is connected to a television. Leadsinger's device sometimes displays licensed reproductions of still photographs as a background for the onscreen lyrics. And, on occasion, Leadsinger includes with the device a printed copy of the lyrics to the songs recorded on the microchip. According to Leadsinger's complaint, the purpose of both the printed and visually displayed song lyrics is to facilitate the customer's ability to read the lyrics and/or sing along with the recorded music. Leadsinger further claims that both in and outside the karaoke context, the inclusion of printed lyrics assists buyers in understanding song lyrics and enables parents to control the lyrical content that children are exposed to. The district court concluded that a 115 compulsory license does not grant Leadsinger the right to display visual images and lyrics in real time with music, and that the allegations in Leadsinger's complaint do not support its fair use claim. Leadsinger, Inc. v. BMG Music Publ'g, 429 F.Supp.2d 1190, 1193-97 (C.D.Cal.2005). The district court dismissed Leadsinger's complaint without leave to amend, concluding that amendment would be futile. Id. at 1197. This appeal followed. [] . . . III. DISCUSSION

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A. The Copyright Act In deciding whether the district court properly dismissed Leadsinger's complaint, we are guided by the language of the Copyright Act. Section 102 of the Copyright Act extends copyright protection to, among other original works of authorship, literary works, musical works (including any accompanying words), and sound recordings. 17 U.S.C. 102. Though 17 U.S.C. 106 grants copyright owners the exclusive right to reproduce copyrighted works in copies or phonorecords and to distribute copies or phonorecords of the copyrighted work to the public by sale, 17 U.S.C. 115 limits copyright owners' exclusive rights with respect to phonorecords. Phonorecords are defined as: [M]aterial objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term phonorecords includes the material object in which the sounds are first fixed. 17 U.S.C. 101 (emphasis added). Section 115 subjects phonorecords to a compulsory licensing scheme that authorizes any person who complies with its provisions to obtain a license to make and distribute phonorecords of a nondramatic musical work if: (1) the work has been distributed to the public in the United States under the authority of the copyright owner; and (2) the person's primary purpose in making phonorecords is to distribute them to the public for private use. Id. 115(a)(1). As the definition of phonorecords indicates, audiovisual works are not phonorecords. See id. 101. Thus, 115's compulsory licensing scheme does not apply to audiovisual works. The Copyright Act defines audiovisual works as: [W]orks that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects, such as films or tapes, in which the works are embodied. Id.; see 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright 2.09 [A] (2007)[hereinafter Nimmer on Copyright ]. Though it is not explicit in the Copyright Act, courts have recognized a copyright holder's right to control the synchronization of musical compositions with the content of audiovisual works and have required parties to obtain synchronization licenses from copyright holders. See Maljack Prods., Inc. v. GoodTimes Home Video Corp., 81 F.3d 881, 884-85 (9th Cir.1996) (recognizing the concept of synchronization rights); ABKCO Music, Inc. v. Stellar Records, Inc., 96 F.3d 60, 63 n. 4 (2d Cir.1996) (A synchronization license is required if a copyrighted musical 52

composition is to be used in timed-relation or synchronization with an audiovisual work.) (citation omitted); see also 6 Nimmer on Copyright 30.02 [F][3] (A license is necessary if an existing musical composition is to be used in synchronization or timedrelation with an audiovisual work.). The Copyright Act defines literary works as works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, manuscripts, phonorecords, film, tapes, disks, or cards, in which they are embodied. 17 U.S.C. 101. Song lyrics are copyrightable as a literary work and, therefore, enjoy separate protection under the Copyright Act. See id. 102(a)(1) (extending copyright protection to literary works); Zomba Enters., Inc. v. Panorama Records, Inc., 491 F.3d 574, 578 n. 1 (6th Cir.2007); ABKCO Music, 96 F.3d at 64; 1 Nimmer on Copyright 2.05[B] (lyrics alone are nevertheless copyrightable as a literary work). B. Karaoke Devices As Audiovisual Works The district court concluded that Leadsinger would not be entitled, under any set of facts, to a declaration that a 115 compulsory license to make and distribute phonorecords authorizes it to display song lyrics in real time with song recordings. While our reasoning differs slightly from that of the district court, we agree with the district court's conclusion. The district court reasoned that Leadsinger's device falls outside of the definition of phonorecord because the device contains more than sounds. Leadsinger, Inc. v. BMG Music Publ'g, 429 F.Supp.2d 1190, 1194-95 (C.D.Cal.2005); see 17 U.S.C. 101 (Phonorecords are material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed....). While it is true that the microchip in Leadsinger's device stores visual images and visual representations of lyrics in addition to sounds, the plain language of the Copyright Act does not expressly preclude a finding that devices on which sounds and visual images are fixed fall within the definition of phonorecords. 17 U.S.C. 101. The definition of phonorecords is explicit, however, that audiovisual works are not phonorecords and are excluded from 115's compulsory licensing scheme. Id. 101. We need not settle upon a precise interpretation of 101's definition of phonorecords in this case because Leadsinger's karaoke device meets each element of the statutory definition of audiovisual works and, therefore, cannot be a phonorecord. As stated above, 101 of the Copyright Act defines audiovisual works as works consisting of a series of related images that are intrinsically intended to be shown by the use of machines.... First, the visual representation of successive portions of song lyrics that Leadsinger's device projects onto a television screen constitutes a series of related images. FN1 Though Leadsinger suggests that its images of song lyrics are not related, the images bear a significant relationship when examined in context. In its complaint, Leadsinger explained that the purpose of karaoke is for the consumer to sing 53

the lyrics to a song in real time as the song is playing. To accomplish this purpose, it is necessary that the images of song lyrics be presented sequentially so as to match the accompanying music and make the lyrics readable. See 1 Nimmer on Copyright 2.09[B] ([A] series of slides ... if presented sequentially (or in a related sequence) will constitute an audiovisual work....). FN1. When discussing the images that Leadsinger's karaoke device projects, we refer only to the visual representation of song lyrics. While Leadsinger's complaint states that its device sometimes includes licensed reproductions of still photographs as a background for the onscreen lyrics, nothing in the complaint indicates that these still photographs could be characterized as a series of related images. The fact that the related images are comprised of song lyrics, which constitute a literary work, does not preclude us from concluding that Leadsinger's device is an audiovisual work. The definition of literary works is clear that the categories of literary works and audiovisual works are not mutually exclusive. The Copyright Act defines literary works as works, other than audiovisual works, expressed in words ... regardless of the nature of the material objects, such as ... phonorecords, film, tapes, disks, or cards, in which they are embodied. 17 U.S.C. 101. That the definition of literary works includes the phrase other than audiovisual works, confirms that a literary work may constitute an audiovisual work if it also fulfills the definition of an audiovisual work. Second, though 101 does not require that an audiovisual work have sound, in the case of Leadsinger's karaoke device, its images of successive portions of song lyrics are intrinsically intended to be shown by the use of machine ... together with accompanying sounds. Id. 101. An essential function of Leadsinger's device is its ability to indicate to the consumer exactly when to sing each lyric. Leadsinger's device is able to do so only because it utilizes a machine to project the song lyrics in real time with the accompanying music. In ABKCO Music, the Second Circuit similarly concluded that the karaoke device in that case was an audiovisual work. 96 F.3d at 65. Though the ABKCO Music court failed to discuss the importance of a machine to the functioning of the karaoke device at issue, it held that the device constituted an audiovisual work, since [it] consist[s] of a series of related images'-the lyrics-together with accompanying sounds'-the music. Id. (quoting 17 U.S.C. 101). FN2 FN2. The only court to hold that a karaoke device is not an audiovisual work is the District Court for the District of Utah, in EMI Entm't World, Inc. v. Priddis Music, Inc., 505 F.Supp.2d 1217, 1221-22 (D.Utah 2007), which concluded that synchronization licenses are not necessary to sell a product that displays lyrics in timed relation with music. In essence, the EMI Entertainment World court did not view the use of song lyrics for 54

karaoke as different from the production of printed copies of song lyrics. Id. We are not persuaded by the court's reasoning in EMI Entertainment World. That case failed to consider the use of song lyrics in context. See WGN Cont'l Broad. Co. v. United Video, Inc., 693 F.2d 622, 628 (7th Cir.1982) (holding that printed text is part of an audiovisual work when overlaid on a broadcast news program). The images of song lyrics for the purpose of karaoke differ from song lyrics printed on a sheet of paper. Song lyrics printed on paper are not a series of images, have no relationship to a machine, and are not capable of indicating to the consumer when the lyrics are to be sung. On the other hand, images of song lyrics embedded in a karaoke device are part of a series of images, and must be shown by a machine so that the consumer knows when to sing each lyric. To the extent it is requested, Leadsinger also is not entitled to a declaration that compulsory mechanical licenses under 115 allow it to reprint lyrics in booklets that accompany its karaoke products. As stated above, lyrics are separately copyrightable as literary works. See Zomba Enters., 491 F.3d at 578 n. 1; ABKCO Music, 96 F.3d at 64. Section 115 covers only the right to make and distribute phonorecords. Though these phonorecords may include oral renditions of song lyrics, the reproduction of song lyrics on paper is not within the scope of 115. See ABKCO Music, Inc., 96 F.3d at 64; cf. EMI Entm't World, 505 F.Supp.2d at 1223 (noting that the defendants had reprint licenses entitling them to reprint lyrics of copyrighted songs). We hold that Leadsinger's device falls within the definition of an audiovisual work. As a result, in addition to any 115 compulsory licenses necessary to make and distribute phonorecords and reprint licenses necessary to reprint song lyrics, Leadsinger is also required to secure synchronization licenses to display images of song lyrics in timed relation with recorded music. C. Fair Use Leadsinger argues that regardless of whether its device is subject to 115's compulsory licensing scheme, it is entitled to publish or display copyrighted song lyrics under the fair use doctrine. We agree with the district court's conclusion that the allegations in Leadsinger's complaint do not support a finding of fair use. []. . . Though Leadsinger alleges that its use of lyrics helps consumers to understand the song lyrics and that the words facilitate parental control over objectionable song words, the ultimate use to which the customer puts[a copyrighted work] is irrelevant.... L.A. News Serv. v. Tullo, 973 F.2d 791, 797 (9th Cir.1992); see Harper & Row Publishers, 471 U.S. at 562, 105 S.Ct. 2218 (The crux of the profit/non-profit distinction is ... whether the [vendor] stands to profit from exploitation of the copyrighted material without paying the customary price.); Zomba Enters., 491 F.3d at 582-83 ([T]he enduser's utilization of the product is largely irrelevant....). Leadsinger's basic purpose 55

remains a commercial one-to sell its karaoke device for profit. And commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright. Sony Corp. of Am., 464 U.S. at 451, 104 S.Ct. 774. []. . . We have, however, concluded that Leadsinger's use is intended for commercial gain, and it is well accepted that when the intended use is for commercial gain, the likelihood of market harm may be presumed. Sony, 464 U.S. at 451, 104 S.Ct. 774. We have not hesitated to apply this presumption in the past, see, e.g., Elvis Presley Enters., Inc. v. Passport Video, 349 F.3d 622, 631 (9th Cir.2003), and we are not reluctant to apply it here. Moreover, the importance of[the market effect] factor [varies], not only with the amount of harm, but also with the relative strength of the showing on the other factors. See Campbell, 510 U.S. at 591 n. 21, 114 S.Ct. 1164. The showing on all other factors under 107 is strong: the purpose and character of Leadsinger's use is commercial; song lyrics fall within the core of copyright protection; and Leadsinger uses song lyrics in their entirety. On this basis, we affirm the district court's dismissal of Leadsinger's request for a declaration based on the fair use doctrine. []. . . CONCLUSION For the foregoing reasons, we AFFIRM the district court's dismissal of Leadsinger's complaint without leave to amend.

5.

Performance Right in Musical Compositions: Herbert v. Shanley Co., 242 U.S. 591 (1917)

Mr. Justice Holmes delivered the opinion of the court: These two cases present the same question: whether the performance of a copyrighted musical composition in a restaurant or hotel without charge for admission to hear it infringes the exclusive right of the owner of the copyright to perform the work publicly for profit. Act of March 4, 1909, chap. 320, 1(e), 35 Stat. at L. 1075, Comp. Stat. 1913, 9517. The last-numbered case was decided before the other and may be stated first. The plaintiff owns the copyright of a lyric comedy in which is a march called From Maine to Oregon. It took out a separate copyright for the march and published it separately. The defendant hotel company caused this march to be performed in the dining room of the Vanderbilt Hotel for the entertainment of guests during meal times, in the way now common, by an orchestra employed and paid by the company. It was held by the circuit court of appeals, reversing the decision of the district court, that this was not a performance for profit within the meaning of the act. 136 C. C. A. 639, 221 Fed. 229.

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The other case is similar so far as the present discussion is concerned. The plaintiffs were the composers and owners of a comic opera entitled Sweethearts, containing a song of the same title as a leading feature in the performance. There is a copyright for the opera and also one for the song, which is published and sold separately. This the Shanley Company caused to be sung by professional singers, upon a stage in its restaurant on Broadway, accompanied by an orchestra. The district court, after holding that by the separate publication the plaintiffs' rights were limited to those conferred by the separate copyright,-a matter that it will not be necessary to discuss,-followed the decision in 136 C. C. A. 639, 221 Fed. 229, as to public performance for profit. 222 Fed. 344. The decree was affirmed by the circuit court of appeals. 143 C. C. A. 460, 229 Fed. 340. If the rights under the copyright are infringed only by a performance where money is taken at the door, they are very imperfectly protected. Performances not different in kind from those of the defendants could be given that might compete with and even destroy the success of the monopoly that the law intends the plaintiffs to have. It is enough to say that there is no need to construe the statute so narrowly. The defendants' performances are not eleemosynary. They are part of a total for which the public pays, and the fact that the price of the whole is attributed to a particular item which those present are expected to order is not important. It is true that the music is not the sole object, but neither is the food, which probably could be got cheaper elsewhere. The object is a repast in surroundings that to people having limited powers of conversation, or disliking the rival noise, give a luxurious pleasure not to be had from eating a silent meal. If music did not pay, it would be given up. If it pays, it pays out of the public's pocket. Whether it pays or not, the purpose of employing it is profit, and that is enough. Decree reversed.

C.

Early Challenges to Performance Rights Societies

1.

Harms v. Cohen, 279 F. 276 (E.D. Pa. 1922)

THOMPSON, District Judge. The plaintiff, a corporation engaged in the business of publishing and selling musical compositions, has brought this suit as owner of the copyright in a musical composition entitled Tulip Time, from Ziegfield Follies, 1919. The defendant is alleged to be the owner and manager and operator of the Model Theater, where moving pictures and photo plays are exhibited and musical compositions are played, and to which the general public is admitted upon the payment of an admission fee. It is charged that the defendant, in infringement of the copyright, has given public performances for profit of the musical composition in question, by causing it to be played and performed in his theater for the entertainment and amusement of his patrons.

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The answer, after denying ownership and control of the theater on the part of the defendant, and denying knowledge of many of the averments of the bill, avers, inter alia, in paragraph 12 of the answer: Defendant avers that no musical composition is performed or has been performed in said theater for profit. And in paragraph 16: That there is employed an organist, who has contracted to play while the motion picture and photoplays are being exhibited, such short excerpts of musical selections as may appear to her fitting and appropriate to the action of that portion of the motion picture at that precise instant being shown upon the screen. The said organist is an independent contractor, over whose actions while playing the defendant has no control. The defendant further avers that entire musical compositions are not played, but that merely short excerpts, continuously changing with the theme of the motion picture, are given. Defendant avers that no charge is made for the privilege of listening to the playing of music, which music is purely incidental, and not a part of the motion picture exhibited by the defendant in the conduct of his motion picture business; that the songs played in said theater were not performed by the defendant, or caused to be performed by him, publicly for profit. While the defendant denies that he owns or operated the Model Theater, the answer admits that at the theater daily exhibitions of motion pictures and photo plays are given, to which the general public is admitted, on payment of an admission fee. I fail to see any distinction in law in favor of the performance of copyright musical compositions in moving picture theaters to which a charge for admission is made, as opposed to their performance in public restaurants, as an additional attraction to the customers of such restaurants, which latter were held to be performances for profit within the meaning of the Copyright Act in the case of Herbert v. Shanley Co., 242 U.S. 591, 37 Sup.Ct. 232, 61 L.Ed. 511. It may be assumed that music selected because it is fitting and appropriate to the action of that portion of the motion picture at that precise instant being shown upon the screen, and continuously changing with the theme of the motion picture, is played for the additional attraction to the audience and for its enjoyment and amusement. As Mr. Justice Holmes says in the case above cited: If music did not pay, it would be given up. If it pays, it pays out of the public's pocket. Whether it pays or not, the purpose of employing it is profit, and that is enough. As to the averments that the organist is an independent contractor, over whose actions, while playing, the defendant has no control, and that she plays only such short excerpts as may to her appear fitting and appropriate, they do not constitute a defense against the charge in the bill. He who employs a musician to perform in an exhibition for profit, 58

under a contract by which the musician has authority to play whatever compositions are in accordance with her judgment appropriate and fitting, must be held responsible for all that is done by the musician. By giving her that authority the employer acquiesces in and ratifies whatever she does. If under his contract he has parted with the right to exercise this control over her actions, without making inquiry as to what she intends to play, he yet must be deemed to have taken part, and to have given her general authority to perform copyright compositions. Monahan v. Taylor, 2 Times Law Reports, 685 (Queen's Bench Division); Irving Berlin, Inc., v. Edelweiss Cafe & Investment Company, in the District Court for the District of Colorado (unreported). See, also, Performing Rights Society, Ltd., v. Thompson, 34 Times Law Reports, 351; Trow v. Boyd (C.C.) 97 Fed. 586. That the playing consisted of short excerpts is no defense. Folsom v. Marsh, 2 Story, 100, Fed. Cas. No. 4,901; Dalv v. Palmer, Fed. Cas. No. 3,552; Hein v. Harris (C.C.) 175 Fed. 875, affirmed 183 Fed. 107, 105 C.C.A. 399; Boosey v. Empire Music Co. (D.C.) 224 Fed. 646. . . . []. . . . Paragraph 17 of the answer is as follows: Defendant is informed, believes, and therefore charges, that it has become a universal custom of musical composers and publishers to issue, and to send out to musicians in every part of the United States, what are known as 'professional copies' of their musical compositions, with a request that these musicians publicly perform said compositions and thereby 'plug or popularize and advertise said compositions to the ultimate benefit of the authors and publishers. Defendant is informed, believes, and therefore charges, that professional copies of this selection, to wit, 'Tulip Time,' as well as others published by the plaintiff, were furnished by it, or through its agents, to the organist employed by the owner; that the issuance of such professional copies constituted a license to the recipient thereof to publicly perform such musical composition; that the plaintiff acquiesced in such public performance of the musical selection wherever and in what manner it was so played, and that the plaintiff was greatly benefited, and not damaged, by any such performance. If the custom is as stated, the issuing and sending out of professional copies is, as part of the custom, accompanied by the request for public performance by the musicians to whom the copies are sent. The charge that the professional copies of Tulip Time were furnished to the organist is insufficient to bring the plaintiff within the custom, because there is no averment that the sending out was accompanied with the request constituting a part of the custom. The mere giving of professional copies does not constitute a license. The averment of acquiescence in public performance clearly is intended to imply that the acquiescence was through the sending out of the professional copies, for there are no other facts averred upon which the conclusion of acquiescence is based. The averment that the plaintiff was greatly benefited, and not damaged, by any such performance, is clearly immaterial, and the seventeenth paragraph as a whole must be stricken out. 59

Paragraph 18 of the answer avers in substance that the plaintiff is a member of the American Association of Composers, Authors, and Publishers, which includes a majority, if not all, of the composers, authors, and publishers in the United States; that the members thereof, for the purpose of securing to themselves an unreasonable and extortionate profit, and for the purpose of establishing and maintaining an unreasonable and extortionate license fee for the performance of their musical numbers, have combined and assigned to the society the privilege to issue licenses for the performance of the music of the members, and to charge such sums as the society might fix; that the society appointed an agent to issue licenses for the performance of the musical compositions in Philadelphia; that the agent demanded extortionate fees for such licenses, which the defendant refused to pay. It is averred that the plaintiff is therefore engaged with others in a combination or conspiracy in restraint of interstate trade or commerce, in violation of section 1 of the Sherman Act; that the present bill is one of eight simultaneously brought by members of the alleged combination; and that the present suit is not a bona fide action to protect the plaintiff's rights, but is part of a combination or conspiracy to create a monopoly in the musical composing and publishing business, in restraint of trade, and to demand unreasonable and extortionate profit from moving picture theater owners and lessees. Under the Copyright Act (section 1 (Comp. St. Sec. 9517)) the copyright owner has the exclusive right to print, reprint, publish, copy, and vend the copyrighted work, and under section 41 (Comp. St. Sec. 9562) the copyright is distinct from the property in the material object copyrighted, and the sale or conveyance by gift or otherwise of the material object does not, of itself, constitute a transfer of the copyright, nor does the assignment of the copyright constitute a transfer of the title to the material object. Does a combination of composers, authors, and publishers, under which extortionate license fees are demanded for public performances for profit of the musical numbers copyrighted by the various members, constitute a violation of the Sherman Act (Comp. St. Secs. 8820-8823, 8827-8830)? The agreement under which the alleged unlawful combination was formed is not before the court, and the question must be decided upon the averments in the answer. In order to constitute a defense, it must be established that one charged with infringement may be relieved from liability if the plaintiff is engaged in an alleged unlawful combination. Congress has declared in the Sherman Act that all such contracts and combinations in the form of trust or otherwise are illegal, but, on the other hand, has granted to musical composers a monopoly in their works, and has provided methods for enforcing their rights in the courts. If an infringer, when those remedies are invoked, may set up as a defense that the copyright is the object of an unlawful combination, and is being used to carry into effect the purposes of an unlawful combination, may he thus escape the results of his own wrongful act? If he can set up an unlawful combination as a defense against his infringement of the copyright, then any one who wrongfully trespasses upon or takes the property of another may set up as a 60

defense that the property was being held and used by a member of an unlawful combination in carrying out the purposes of that combination. It would follow, if one took possession of cattle or beef belonging to a corporation or individual, a member of a combination for fixing the price of cattle or beef in restraint of trade, he would be relieved from liability to pay for the property so taken, or from returning it to its owner, upon producing proof that the owner was engaged in such unlawful combination. In the same manner one might with impunity take possession of oil, gasoline, sugar, or other commodities belonging to members of an alleged trust or combination in restraint of trade. But there is no provision in the Sherman Act divesting members of combinations in restraint of trade of their property. The remedies under that act are clearly defined and are exclusive. Geddes v. Anaconda Mining Co., 254 U.S. 590, 41 Sup.Ct. 209, 65 L.Ed. 425; Motion Picture Patents Co. v. Ullman (C.C.) 186 Fed. 174; Fraser v. Duffey et al. (D.C.) 196 Fed. 900; Weyman-Bruton Co. v. Old Indian Snuff Mills (D.C.) 197 Fed. 1015; Corrugated Paper Patents Co. v. Paper W.M. Co. of N.Y. (D.C.) 237 Fed. 380; Edison Electric Light Co. v. Sawyerman Electric Co., 53 Fed. 592, 3 C.C.A. 605; U.S. Fire et al. Co. v. Halsted (D.C.) 195 Fed. 295. 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, People v. Klaw, 55 Misc.Rep. 72, 106 N.Y.Supp. 341; or producing grand opera, Metropolitan Opera Co. v. Hammerstein, 162 App.Div. 691, 147 N.Y.Supp. 532; or the giving of exhibitions of baseball games, National League et al. v. Federal Baseball Club et al., 269 Fed. 681, 50 App.D.C. 165. The answer does not set up that the defendant is affected in any other way by the alleged unlawful combination, except by his being prevented from producing the plaintiff's copyrighted music. The material object, 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. Hopkins v. United States, 171 U.S. 578, 19 Sup.Ct. 40, 43 L.Ed. 290; Anderson v. United States, 171 U.S. 604, 19 Sup.Ct. 50, 43 L.Ed. 300; Blumenstock Brothers et al. v. Curtis Publishing Co., 252 U.S. 436, 40 Sup.Ct. 385, 64 L.Ed. 649; Charles A. Ramsay Co. v. Associated Bill Posters (C.C.A. 2d Cir.) 271 Fed. 140. Paragraph 18 of the answer must therefore be stricken out. It is ordered that the motion to strike out be granted, in so far as is consistent with this opinion, and otherwise be denied.

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2.

Schwartz v. Broadcast Music Inc., 180 F.Supp. 322 (S.D.N.Y. 1959)

WEINFELD, District Judge. This is a motion by the defendants for summary judgment in a private antitrust suit brought under sections 4, 12 and 16 of the Clayton Act.FN1 The motion is based solely on plaintiffs' alleged lack of standing to sue and hence the merits of the action are not involved. FN1. 38 Stat. 731, 736, 737 (1914), 15 U.S.C.A. 15, 22, 26. Alternatively, the defendants seek partial summary judgment, should the Court conclude that plaintiffs are entitled to maintain this action as to some, but not all, of their claims for damages. Finally, the defendants move, should the Court conclude that issues of fact exist as to material matters touching upon plaintiffs' capacity to sue, that a separate trial be granted with respect to such facts. The plaintiffs urge that the record demonstrates they do have standing to sue, and in any event, disputed questions of fact on this issue require the denial of the motion. As to the request for a separate trial, they contend it would be just as expeditious to proceed on all issues, leaving to the trial court the determination of the defendants' contentions. []. . . These pre-trial proceedings, which have extended over a five-year period, forecast an extremely long trial presenting complex issues. This circumstance, however, can play no part in the consideration of this motion. If the plaintiffs have been directly damaged by reason of the wrongful conduct charged against the defendants, they may not be denied their day in court, even though a trial upon the merits and incidental proceedings may take, as the defendants suggest, several years. Equally, it follows, if plaintiffs are without right to maintain this action, then the defendants are entitled to be protected against the heavy burden of expense and effort entailed in a protracted and intricate trial. Moreover, the proper administration of justice requires, in the interests of other litigants who await and are entitled to a trial, that the Court's energies and time be not deflected by an unnecessary and time-consuming trial. This comment is made since the extensive, if not prolific, affidavits and briefs submitted in support of, and in opposition to, the motion, have strayed in a number of instances far and wide from the basic question. The allegations of the complaint charging an illegal conspiracy by the defendants in violation of the antitrust laws, must, for the purposes of this motion, be deemed true. FN2 Consequently, those portions of the affidavits which argue the merits of the charges are not pertinent. FN2. Safeway Stores, Inc. v. Wilcox, 10 Cir., 1955, 220 F.2d 661; Reynolds v. Maples, 5 Cir., 1954, 214 F.2d 395; Zell v. American Seating 62

Co., 2 Cir., 1943, 138 F.2d 641, reversed on other grounds 1944, 322 U.S. 709, 64 S.Ct. 1053, 88 L.Ed. 1552. The issue here falls within a very narrow compass- whether the alleged antitrust conduct of the defendants has injured the plaintiffs in their business or property within the meaning of the antitrust statutes so as to give them standing to maintain this action for treble damages. The voluminous record furnishes a basis upon which a decision can be reached on the question posed. It is difficult to believe that further proliferation of it will yield additional material facts. It is stated that on the limited issue alone thousands of pages of testimony were taken. [] . . . . Since the motion rests upon documentary evidence, the authenticity of which is not challenged, plaintiffs' admissions and their answers to interrogatories, there are no facts in dispute which are essential to a determination of the tendered legal question [FN4] - whether the plaintiffs have standing to maintain this action. FN4. Cf. Associated Press v. United States, 1945, 326 U.S. 1, 5-6, 65 S.Ct. 1416, 89 L.Ed. 2013. The plaintiffs, thirty-three in number, professional composers and authors, are engaged in the writing of musical compositions. [FN5] They bring this action, in their individual capacities, and, also, as a spurious class action pursuant to Rule 23(a)(3) of the Federal Rules of Civil Procedure on behalf of approximately 3,000 professional authors and composers of music who allegedly have suffered and will continue to suffer loss and damage in their business and property by reason of defendants' conduct in violation of the antitrust laws, as set forth in the complaint. Plaintiffs are members of ASCAP. FN5. Plaintiffs' counsel refers to them as writers of music- a generic term to describe both those who supply the music, commonly called composers, and those who, supplying the lyrics, are called authors. The individual musical works they produce include popular songs, production songs, and serious music including symphonies and music for ballet and opera. The defendants include Broadcast Music, Inc., (hereafter referred to as BMI), which is wholly owned by radio and television broadcasting companies. BMI is engaged primarily in the acquisition and licensing of performance rights in musical compositions. The other defendants include the leading radio and television networks, each of which owns and operates radio and television stations. These defendants, together with other broadcasters, organized BMI. Each broadcasting company defendant is a stockholder of BMI. Also named as defendants are subsidiary publishing and recording companies, and various individuals who were or are officers, directors, or executives of one or more of the corporate defendants.

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The gist of the plaintiffs' charges is that the defendants conspired to dominate and control the market for the use and exploitation of musical compositions, particularly the rights to public performance for profit, to establish and maintain a monopoly thereof and to restrain trade and commerce therein. The ultimate goal, say the plaintiffs, was to control the music industry and thereby to fix and reduce the price to be paid by the defendant networks and their co-conspirators in the broadcasting industry for the use of music on their programs. Plaintiffs charge that to achieve their conspiratorial objective, the defendants organized BMI in 1939, as the vehicle to maintain a music pool for their joint use and benefit, and have dominated it ever since. In general they allege that to effectuate the conspiracy, the defendants have given preference to the performance of BMI controlled music, have discriminated against the musical compositions written by the plaintiffs and other writers similarly situated, have boycotted, restricted and limited their musical compositions both in broadcasting and recording and have induced other broadcasters and record companies to do the same. Specific acts and conduct of the defendants in furtherance of the conspiracy are enumerated in the complaint. Plaintiffs charge that such conspiratorial acts and conduct have resulted in limited introduction and availability to the public of non-BMI songs and a monopoly in the music industry to the detriment of the plaintiff songwriters, other songwriters and the public. The plaintiffs allege that the defendants have limited, restricted and prevented (1) the publication of musical compositions written by plaintiffs and others similarly situated; (2) the marketing and sale of published versions thereof; (3) the use and utilization thereof by radio and television broadcasting stations and networks; (4) the use and utilization thereof in the manufacture and sale of phonograph records; (5) the public performance for profit thereof in places of public gathering and entertainment, and (6) the stimulation which use and popularization in each of said segments of the market provides for exploitation in other segments thereof. In consequence, the plaintiffs claim that they and other writers similarly situated have been injured by an annual loss of income from their musical compositions, depreciation of the price of performance fees and loss of prestige and recognition as authors and composers. Plaintiffs seek treble damages in the sum of $150,000,000 and injunctive relief. Section 4 of the Clayton Act [FN6] provides in pertinent part, as follows: * * * Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States * * * and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.

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FN6. 38 Stat. 731 (1914), 15 U.S.C.A. 15. Section 16 of the Clayton Act, 38 Stat. 737 (1914), 15 U.S.C.A. 26, provides for injunctive relief. While the foregoing statute contains no language of limitation, the courts have restricted the right to sue thereunder to those persons who are directly injured in their business or property. Those who are indirectly or incidentally injured by the forbidden conduct have been denied standing to assert a claim. Our Court of Appeals has summarized the rule as follows: Those harmed only incidentally by anti-trust violations have no standing to sue for treble damages; only those at whom the violation is directly aimed, or who have been directly harmed may recover. Undoubtedly, (other) persons suffer some financial loss when antitrust violations are directed against the corporations in which they have an interest. But not every financial loss due to an anti-trust violation, however remote, gives a right of action.' [FN7] FN7. Productive Inventions, Inc. v. Trico Products Corp., 2 Cir., 1955, 224 F.2d 678, 679, certiorari denied 1956, 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818. Similarly, the rule has been stated in Martens v. Barrett, [FN8] as follows: * * * It is universal that where the business or property allegedly interfered with by forbidden practices is that being done and carried on by a corporation, it is that corporation alone, and not its stockholders (few or many), officers, directors, creditors or licensors, who has a right of recovery, even though in an economic sense real harm may well be sustained as the impact of such wrongful acts bring about reduced earnings, lower salaries, bonuses, injury to general business reputation, or diminution in the value of ownership. FN8. 5 Cir., 1957, 245 F.2d 844, 846. A fairly general pattern has emerged from this concept. The following plaintiffs have been held to be without standing to sue for treble damages under the antitrust laws: (1) a patent owner who licenses his patents to a manufacturer on a royalty basis, for loss of royalties on sales which would have been made but for the antitrust conduct of defendants;[FN9 omitted] (2) shareholders, officers, and creditors of corporations for diminution in value of ownership, loss of earnings or impairment of corporate ability to pay, due to the impact of antitrust conduct on the corporation;[FN10 omitted] (3) nonoperating motion picture landlords for depreciation in market value of the property or loss of rents attributable to antitrust violations relating to the showing of pictures at the theatres operated by their lessees; [FN11 omitted] (4) an insurance broker for loss of 65

income due to a conspiracy to deprive the company which he represented of a particular contract;[FN12 omitted] (5) a supplier of raw materials for loss of sales resulting from conduct restricting the business of its major customer.[FN13 omitted] While the instant case bears resemblance to some of the foregoing, it does not fit precisely the pattern of any. The defendants' position broadly stated is that the pre-trial record demonstrates that the plaintiffs have so divested themselves to others- ASCAP and music publishers- of rights in their compositions, that they retained no business or property susceptible of direct injury within the meaning of the statute; that the conspiracy to restrict compositions written by the plaintiffs, if it injures anyone, directly injures ASCAP and the publishers, and injury, if any, to plaintiffs is indirect, remote and incidental, for which recovery is not permitted under the act. Consideration of this contention requires an analysis of plaintiffs' rights in their musical compositions, the nature of the rights transferred to others and what rights, if any, were retained by plaintiffs. A writer of a musical composition under common law possesses the exclusive right to make the first publication and to prevent publication by others. However, upon its first publication the composition passes into the public domain. The author's right in his composition may be preserved by publication with notice of copyright in compliance with the terms and provisions of the Copyright Act. [FN14] Upon such publication the common law rights are terminated and statutory rights come into being and control. [FN15] As stated in some of the authorities, when the copyright comes in, the common law right goes out.' [FN16] The statutory rights may be summarized as follows: (1) Printing and publishing rights: The right to print and sell piano and orchestration copies, folios, composite works and other printed versions of the composition; (2) Mechanical reproduction rights: (a) The right to manufacture and sell phonograph recordings, electrical transcriptions, tapes and other devices reproducing the composition, including (b) the right to make recordings of the composition in synchronization with motion pictures; (3) Public performance for profit rights: The right to perform, nondramatically, the composition in public for profit by means of live or recorded presentations. [FN17] FN14. 17 U.S.C.A. 10.

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FN15. Bobbs-Merrill Co. v. Straus, 1908, 210 U.S. 339, 347, 28 S.Ct. 722, 52 L.Ed. 1086; Warner Bros. Pictures, Inc. v. Columbia Broadcasting System, Inc., 9 Cir., 1954, 216 F.2d 945, certiorari denied 1955, 348 U.S. 971, 75 S.Ct. 532, 99 L.Ed. 756. FN16. E.g., Warner Bros. Pictures, Inc. v. Columbia Broadcasting System, Inc., 9 Cir., 1954, 216 F.2d 945, 948, certiorari denied 1955, 348 U.S. 971, 75 S.Ct. 532, 99 L.Ed. 756. FN17. The statute also grants to an author a public performance right in dramaticomusical works. Neither this right nor the motion picture synchronization rights are involved herein. The rights so granted upon compliance with the statute are separate and independent. They may be retained by the owner or disposed of by him to others either singly or in their entirety, as his interests dictate. [FN18] FN18. Interstate Hotel Co. v. Remick Music Corp., 8 Cir., 1946, 157 F.2d 744, 745, certiorari denied 1947, 329 U.S. 809, 67 S.Ct. 622, 623, 91 L.Ed. 691; M. Witmark & Sons v. Jensen, D.C.D.Minn.1948, 80 F.Supp. 843, 846-847, appeal dismissed 8 Cir., 1949, 177 F.2d 515. The burden of the defendants' challenge to the plaintiffs' standing to sue centers about the separate dispositions by plaintiffs of (1) printing, publishing and mechanical reproduction rights, sometimes referred to hereafter as the publishing and recording rights, and (2) the nondramatic public performance rights for profit, hereafter referred to as the public performance rights. The claims which center about these rights may be considered separately. [FN19] FN19. Cf. Ring v. Spina, 2 Cir., 1945, 148 F.2d 647, 653, 160 A.L.R. 371. To support their position, the defendants note that the complaint alleges, and the pre-trial record establishes, that plaintiffs' and other writers' compositions are marketed through (1) the printing and sale of sheet music, (2) the licensing of recordings on phonograph records and other mechanical reproductions, and (3) the licensing of public performance rights. Accordingly, the defendants argue that since the plaintiffs have granted, for commercial exploitation, their public performance rights to ASCAP and their recording and publishing rights to the publishers, from whom they receive payments therefor, any injury to plaintiffs is indirect and secondary; that the conspiracy, if it injures anyone directly, injures ASCAP and the music publishers; that the right to sue for damages for such direct injuries is with them and not with the plaintiffs.

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In all, 7,000 songs have been composed by the plaintiffs herein. [FN20] As to all, the public performance rights are the subject of agreements with ASCAP by virtue of plaintiffs' membership therein. FN20. This was the total number which at the time of plaintiffs' last examination had been published, placed with a publisher, or registered with ASCAP for performance credits. It does not include works written thereafter. As to 5,800 of the total number, the publishing and recording rights are the subject of agreements entered into by plaintiffs with publishers. As to the remaining 1,200, no publishing or recording contracts are in effect. The plaintiffs are the common law or statutory copyright owners.

The Nondramatic Public Performance Rights and ASCAP The complaint emphasizes that a principal objective of the conspiracy was control of the public performance rights in musical compositions. Hence, we turn first to this aspect of the defendants' attack upon plaintiffs' standing to sue. This involves a consideration of ASCAP and the agreement under which it licenses the nondramatic public performance for profit of plaintiffs' compositions. ASCAP is a nonprofit unincorporated association which was formed in 1914 to protect its members against piracies of their works and generally to promote their interests. It grants licenses and collects royalties for the nondramatic public performance for profit of the works of its members. [FN21] Its duration is 99 years. Its membership includes two groups, authors and composers of music, referred to as writer members', and music publishers. The writer members, including plaintiffs, number in excess of 3,000. ASCAP's general management is vested in a Board of Directors which since prior to 1941 has consisted of an equal number of writer and publisher members. Under the Articles of Association, all members, writers and publishers alike, execute agreements vesting in ASCAP the right to license, upon a nonexclusive basis, the nondramatic public performance of works written or published by the members. Pursuant thereto, these plaintiffs, writer members, entered into uniform agreements with ASCAP. The agreements provide in part that: The Owner (the publisher or writer member) sells, assigns, transfers and sets over unto (ASCAP) for the term hereof, the entire exclusive [FN22] right of public performance * * * in each musical work, of which he is the copyright owner either alone or jointly with others, or in which he has any right, title or interest, or which during the term of the agreement may be written, composed, acquired, owned, published or copyrighted by the owner, alone, jointly, or in collaboration with others. The agreement further provides that with respect to every such musical work, the right of public performance shall be deemed assigned to (ASCAP) by this instrument and shall vest in and be the absolute property of (ASCAP) for the term hereof * * *. 68

These agreements cover substantially all the 7,000 compositions written by the respective plaintiffs. They expire December 31, 1965. FN21. ASCAP also licenses other compositions in its repertory, obtained by contract with foreign societies. FN22. Despite this provision, ASCAP only has a nonexclusive right to license such performances. A provision in a consent decree entered in 1941 (United States v. ASCAP, Civ. No. 13-95, S.D.N.Y., Mar. 4, 1941) enjoined ASCAP from acquiring or asserting exclusive performance rights in the compositions. Thereafter, a clause was added at the end of the agreements stating that the grant made by the owner was modified by the consent decree. Following the entry of an amended decree in 1950 the word exclusive was omitted from the agreements. ASCAP, through its licensing department, grants performance licenses to users of music. They are of two kinds: (1) a blanket license, and (2) a program license. The blanket license is the type generally issued. It grants to the music user for its term the right to perform all the music in ASCAP's catalogue upon payment of a flat fee which does not vary according to the number of ASCAP compositions used by the licensee or the number of programs in which they are played. Under the program license the broadcaster pays ASCAP a fee only for each program in which ASCAP's music is used. The terms of the licenses and the rates to be charged are decided by ASCAP's Board of Directors. Individual members do not pass upon, approve, ratify or reject license terms agreed to by the Board. All royalties and license fees collected by ASCAP are pooled in a common fund. Control over and disposition of all funds received is vested in the Board of Directors. The funds are first disbursed to meet operating expenses and payments due to affiliated foreign societies. Upon payment of the foregoing plus reserves which may be set up, the net amount remaining is distributed among the members upon order of the Board of Directors. The amount to be distributed is divided into two equal parts: one for allocation among publisher members and the other for allocation among writer members. [FN23] The royalties payable to individual writer members are determined by a Writers' Classification Committee composed of writer members of the Board of Directors. The Committee is empowered to determine a writer's status with respect to his share of royalties. In fixing the status of a member, certain criteria are imposed by the Articles of Association upon the Committee. [FN24] These include the number, nature, character and prestige of works composed, written or published by the member, the length of time his works have been a part of the ASCAP catalogue, their popularity and vogue. Primary consideration is to be given to the performance of the compositions as indicated by objective surveys. The system of distribution used by the Writers' Classification Committee has been changed from time to time.

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FN23. Articles of Association of ASCAP, Article XV. FN24. Id. Article XIV. With respect to the 7,000 songs, public performance licenses have been granted only by ASCAP. Plaintiff members since 1941 have not granted a single license although they assert an equal right to grant nonexclusive licenses, a point hereafter considered. The defendants emphasize that the terms of plaintiffs' membership in ASCAP plus ASCAP's activities in marketing for public performance the works of the plaintiffs and other writers compel a finding that it is not the plaintiffs but ASCAP which is in the business of licensing the compositions. Accordingly, they urge that the force of the defendants' alleged illegal conduct is visited directly, and in the first instance, upon ASCAP which receives all the licensing fees and only indirectly upon plaintiffs in the form of reduced royalties. Plaintiffs, however, contend that their business is not only that of creating and writing songs and compositions, but also includes exploiting and promoting their songs; that ASCAP is simply the vehicle through which they effect public distribution of their products. They urge that ASCAP is only an agent, the middleman between the songwriter and the user- that they utilize the services of ASCAP as a licensing and collection agency. Plaintiffs also refer to it as a co-operative society and as a conduit through which the fees flow from the users to the members themselves. Consequently, they contend, the direct loss falls upon them and not ASCAP. No purpose is served in attempting to define the precise jural nature of ASCAP whether co-operative society, agent, conduit,' [FN25] or middle-man, as plaintiffs variously contend or, as the defendants contend, a corporate-like entity or an association whose entire membership has a joint and common interest in this action similar to the members of a partnership. Theoretical concepts must give way to reality. FN25. Our Court of Appeals has recognized that ASCAP is not a mere agency or conduit for its members. Reversing a District Court ruling which dismissed an action brought by two publisher members (corporations) and ASCAP for infringement of copyright, the Court stated any recovery of damages * * * would go to the society, and the corporate plaintiffs were necessary parties merely because they hold their respective causes of action in trust for the society. Buck v. Elm Lodge, Inc., 2 Cir., 1936, 83 F.2d 201, 202. There are many cases where the vindication of the right o f public performance of members' songs was brought in the name of ASCAP, e.g., Buck v. Jewell-La Salle Realty Co., 1931, 283 U.S. 191, 51 S.Ct. 410, 75 L.Ed. 971; Jewell-La Salle Realty Co. v. Buck, 1931, 283 U.S. 202, 51 S.Ct. 407, 75 L.Ed. 978.

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The stubborn facts are that the plaintiffs under the Articles of Association by which they are bound [FN26] have executed agreements which unequivocally transfer to ASCAP a nonexclusive right to license public performances for profit of their compositions; that it is ASCAP, and ASCAP alone, which has marketed and licensed the 7,000 songs written by plaintiffs; that it was not the plaintiffs but ASCAP which negotiated the prices and terms of the licenses; that it was not the plaintiffs but ASCAP which prosecuted claims of infringement of plaintiffs' compositions. It is ASCAP and not its licensees from which the plaintiffs and their fellow members receive royalties. It is ASCAP which determines how much each composer shall receive. The amount distributable to a plaintiff of his share of the fund is beyond his control. Thus, even were it accepted that ASCAP is a cooperative society which renders services exclusively in the interests of its members, this would not remove its activities from the sphere of business.' [FN27] Its business nature is not affected by its nonprofit character. [FN28] FN26. Gem Music Corp. v. Taylor, 1945, 294 N.Y. 34, 38, 60 N.E.2d 196, 198. FN27. American Medical Ass'n v. United States, 1943, 317 U.S. 519, 528, 63 S.Ct. 326, 87 L.Ed. 434. FN28. Cf. Associated Press v. National Labor Relations Board, 1937, 301 U.S. 103, 128-129, 57 S.Ct. 650, 81 L.Ed. 953. The thrust of the alleged conspiracy insofar as the public performance rights are concerned is directed against ASCAP as the licensor of the totality of all its members' compositions and not as against particular members or particular compositions. The licensing activities of ASCAP are extensive and represent a vast business enterprise. It has licensed 3,475 radio stations; 21 national and regional radio networks; 453 television stations and 3 television networks. In 1955, [FN29] 85 per cent of all radio performances and 90 per cent of all television performances of copyrighted music were licensed by ASCAP. In a single year it has issued more than 26,000 general licenses to hotels, night clubs, restaurants and similar public places, motion picture theatres, drive-ins, wired music operators and others. In 1956, its receipts from licenses were close to $25,000,000 and after required disbursements it distributed almost $19,000,000 to its members. No matter what name may be applied to ASCAP, no matter what its jural character, as a consequence of the grant of rights by its members to it, the competition in the field of nondramatic public performances for profit is between ASCAP and BMI and not between plaintiffs or other composers and BMI. Indeed, plaintiffs themselves virtually concede this. In answer to an interrogatory they stated: * * * The rights of public performance for profit of the musical compositions written by (plaintiffs and other writers similarly situated), except in rare instances, are cleared through ASCAP or defendant BMI. No matter how phrased, it cannot obscure the fact that ASCAP, and not the individual composers, is the direct target of the alleged conspiracy. Any other conclusion flies in the face of reality. 71

FN29. The last year for which records were presented. The situation here presented comes within the doctrine enunciated by Judge Learned Hand in Bookout v. Schine Chain Theatres, Inc., 2 Cir., 1958, 253 F.2d 292, 295, that all claims under the Anti-Trust Acts rest upon wrongs done by the suppression of competition and must be initiated by a party whose commerce has been directly injured. The conclusion is compelled that in practice and in fact it is ASCAP which was and is engaged in the business of licensing plaintiffs' compositions for public performance; that for that purpose plaintiffs have so divested themselves of their public performance rights to ASCAP that any injury resulting from the conspiracy was primarily and directly upon ASCAP; that injury if any, sustained by the plaintiffs is secondary and remote. The plaintiffs seek to avert this conclusion, relying upon certain retained rights with respect to their compositions, which independently of those granted to ASCAP, they claim are susceptible of direct injury by reason of defendants' conduct. First, the fact that plaintiffs retained a separate right to grant nonexclusive licenses (assuming arguendo that the right remained with the plaintiffs) [FN30] does not alter the remote nature of any claimed injury. While the 1941 decree voided the exclusive licensing right in ASCAP, the fact is, as already noted, that no plaintiff granted nondramatic public performance licenses. [FN31] The reason is apparent. The blanket licenses issued by ASCAP permit the performance of all compositions in ASCAP's repertoire and hence there is no need for a user to obtain a license from any individual ASCAP member to perform that member's particular composition. The nonexclusive right allegedly retained by the plaintiffs is more apparent than real. The only loss plaintiffs could have suffered was loss of income from ASCAP. FN30. The defendants dispute that the plaintiffs still retain this nonexclusive right in view of their contracts with the publishers which granted them all rights' in the compositions not granted to ASCAP. In view of the disposition here made it is unnecessary to decide this issue. FN31. While plaintiff Schwartz in his affidavit suggests that some of the composers granted consents to users of music, his answers to interrogatories categorically state: The licenses for nondramatic performance for profit for all compositions noted in Schedule A have, since 1940, been issued by ASCAP. It appears that the very limited consents referred to were not for nondramatic performances but were rather consents to perform songs on ASCAP's restricted list or consents to make dramatic performances. At best they are de minimis.

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As to the right to restrict nondramatic performances by ASCAP's radio and television licensees, this has rarely been exercised. Its purpose is to enable an author to protect his composition against indiscriminate performances. This hardly gives support to a claim of direct injury. As to plaintiffs' contention that they retained rights concerning the use of said compositions in dramatico-musical settings, the complaint does not allege, nor is evidence presented, that the conspiracy was directed toward these rights, and hence this furnishes no basis for holding that plaintiffs have standing to sue. Neither does the right to resign from ASCAP give the plaintiffs standing to sue for alleged diminution of income received from ASCAP during the period of membership. Plaintiffs in fact have not resigned. Even if they did, while it would terminate all existing assignments, the resignation would be subject to any right or obligation existing between ASCAP and its licensees and further, to the withdrawing members' right to a proportionate share of distributions from royalties accruing under existing licenses. ASCAP would continue to have the right to grant nonexclusive licenses in a resigned writer's composition as long as his publishers and collaborators remained members of ASCAP. [FN32] FN32. Broadcast Music, Inc. v. Taylor, Sup.Ct. Ct., N.Y.Co.1945, 10 Misc.2d 9, 55 N.Y.S.2d 94. [] . . . . Finally, plaintiffs stress their promotional activities to popularize their songs to derive greater income and urge this as constituting part of their business which they say has been injured by the defendants' conduct. They refer to individual efforts to induce orchestra leaders, performers, disc jockeys, and others, to play their songs as well as efforts to interest record companies in recording them. But these various activities are no different from those engaged in by an author attending a book luncheon, lecturing before college and other groups, or appearing on radio and television programs. The activities of a composer, even though the end result may mean increase in sales of sheet music or records of his composition, do not mean he is in the business of promoting his songs any more than an author of a book is in the business of publishing simply because he seeks by promotional action to increase the sales of his books. In the instant case, unlike others where a plaintiff who was held to be indirectly damaged was denied a right to sue, an avenue of relief is open to the plaintiffs and all other members of ASCAP on whose behalf they allege they bring this action. No substantial reason has been advanced why ASCAP has not brought the action or why it has not been vouched into the action. The fact that ASCAP is a nonprofit organization does not mean that direct injury cannot be inflicted upon it by illegal antitrust conduct of others, just as that fact does not mean that ASCAP cannot itself indulge in antitrust conduct. [FN34] The fact is that ASCAP has sued and has been sued. Indeed, were ASCAP to bring an action based upon the alleged illegal conduct of the defendants by reason of claimed 73

injury and recover a judgment, the proceeds in the first instance would be the property of the association, and subject to the payment of its debts. A recovery would permit distribution to be made to the individual plaintiffs and other members of ASCAP as determined by the Writers' Classification Committee in accordance with the by-laws. [FN35] FN34. American Medical Ass'n v. United States, 1943, 317 U.S. 519, 63 S.Ct. 326, 87 L.Ed. 434. FN35. Cf. American Cooperative Serum Ass'n v. Anchor Serum Co., 7 Cir., 153 F.2d 907, 912-913, certiorari denied 1946, 329 U.S. 721, 67 S.Ct. 57, 91 L.Ed. 625. What was said in Loeb v. Eastman Kodak Co., 3 Cir., 1910, 183 F. 704, 709, although the reference was to stockholders of a corporation is equally pertinent here:Certainly it is not apparent that the (antitrust act) was intended to or did confer upon hundreds or thousands of stockholders individual rights of action when their wrongs could have been equally well and far more economically redressed by a single suit in the name of the corporation. Upon all the foregoing, the Court holds that with respect to the nondramatic public performance rights, the plaintiffs are without standing to sue. We now consider whether the plaintiffs have standing to sue with respect to publishing and recording rights. The Publishing and Recording Rights and the Publishers The plaintiffs have entered into agreements with 300 music publishers, who are also members of ASCAP. Under these they have transferred to the publishers their unpublished original compositions with the right to secure copyright therein and all rights thereunder, subject to the performance rights granted to ASCAP. The agreements cover approximately 5,800 of the 7,000 compositions written by the plaintiffs. They are substantially similar and provide: The Writer hereby sells, assigns, transfers and delivers to the Publisher a certain heretofore unpublished original musical composition written and/or composed by the above-named Writer now entitled * * * including the title, words and music thereof, and the right to secure copyright therein throughout the entire world, to have and to hold the said copyright and all rights of whatsoever nature thereunder existing * * *. The agreement further provides for the payment by the publisher to the writer of stipulated royalties based upon the number of copies of sheet music sold, and a percentage of gross sums received from recording licenses. There can be no doubt that the essential marketing and exploitation of the publishing and recording rights has been 74

carried on under the contracts by the plaintiffs' publishers; that plaintiffs themselves, with but rare exceptions, have never granted any license pertaining to any right in such compositions; that it is the publishers who are in the business of publishing and issuing licenses for recordings and other mechanical reproductions of the plaintiffs' compositions. Again the defendants stress that it is the publishers who in the first instance receive the income from the sale of sheet music and the licensing of recordings upon which royalty payments to the plaintiffs are based. Thus, insofar as the complaint charges interference with the exploitation of the publishing and recording rights in plaintiffs' songs, the case at first blush would seem to compel the same conclusion as that reached in the instance of ASCAP. [FN36] Notwithstanding, plaintiffs, aside from questioning their precise relationship with their publishers, [FN37] here urge that other factors are present which give them standing to sue. FN36. The defendants point out that the rights given to the publishers are not burdened with the same reserved rights as in the instance of ASCAP. FN37. Plaintiffs contend that their contractual relationship with the publishers is a profit-sharing arrangement. The courts, however, appear to have held otherwise, and term the relationship as one of debtor and creditor. Steinbeck v. Gerosa, 4 N.Y.2d 302, 317, 175 N.Y.S.2d 1, 151 N.E.2d 170, 178, appeal dismissed, 1958, 358 U.S. 39, 79 S.Ct. 64, 3 L.Ed.2d 45. See also, Ring v. Spina, 2 Cir., 1945, 148 F.2d 647, 652, 160 A.L.R. 371. Plaintiffs also claim that their agreement with the publisher is a personal service arrangement. The plaintiffs have offered testimony on their pre-trial examinations and in motion is not to weigh and pass upon the with respect to various practices allegedly engaged in by the defendants in furtherance of the conspiratorial objective. They charge that music publishers with whom they had contracts were induced by subsidies, restrictive covenants, incentive payments and other devices including payments of salaries of publishers' employees, to refrain from publishing and exploiting plaintiffs' songs; that recording companies were induced by various methods not to record plaintiffs' songs; that these activities were all for the purpose of suppressing plaintiffs' musical compositions altogether or to discriminate in favor of BMI songs. Plaintiffs further allege that some publishers, who were ASCAP houses, organized BMI companies and although in theory functioning separately, in fact, because of special concessions granted by BMI to the publishers, refrained from promoting non-BMI music or curtailed its exploitation. Plaintiffs name firms who engaged in this practice.

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Publishers to whom plaintiffs transferred their compositions with the right to secure the copyrights were obligated to exploit them in good faith for the benefit of the composers, as well as for themselves. [FN38] FN38. Broadcast Music, Inc. v. Taylor, Sup.Ct., N.Y.Co.1945, 10 Misc.2d 9, 21, 55 N.Y.S.2d 94, 104; In re Waterson, Berlin & Snyder Co., 2 Cir., 1931, 48 F.2d 704. The essence of these charges is that the defendants, in furtherance of the alleged conspiratorial objective to control the music market, induced publishers, including some under contract to plaintiffs, by various means, to withhold exploitation and marketing of plaintiffs' compositions in printed and recorded form; that in order to induce the publishers to do so, the defendants made payments to the publishers to cover their loss in income by reason of nonexploitation of plaintiffs' songs, thus making them whole to the detriment of the plaintiffs; that by such payments, defendants removed the incentive for, and interfered with the duty upon, the publishers to promote the marketing of plaintiffs' songs. The Court's function on this motion is not to weigh and pass upon the merits of the charges. Should the proof sustain the charges, it would be difficult to challenge plaintiffs' claim of direct injury. This branch of the conspiracy appears, upon the facts alleged, to be directed not against the publishers but rather against the songwriters. A conspiracy may have more than one objective and its force directed against one or more intended victims. The target area of the conspiracy was broad enough to include plaintiffs insofar as the publication and recording rights are concerned. [FN39] Upon the facts alleged, the publishers were not damages since they received compensating payments from the defendants; the only persons damaged were the songwriters. The wrongful acts had a direct impact upon the composers who were injured thereby and not upon the publishers who were made whole. The bounties granted to the publishers removed them from the target area of the defendants' attack and placed plaintiffs directly in the line of fire. We note particularly the comment of the Court of Appeals in Productive Inventions, Inc. v. Trico Products Corp.: [FN40] FN39. Cf. Karseal Corp. v. Richfield Oil Corp., 9 Cir., 1955, 221 F.2d 358. FN40. 2 Cir., 1955, 224 F.2d 678, 680, certiorari denied 1956, 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818. No hard and fast rule can be laid down in these situations as the line between direct and incidental damage is not always definable with clarity. The fact that the plaintiffs divested themselves of the publishing and recording rights does not deprive them of standing to sue. They could receive royalties only if the 76

publishers, in good faith, worked their compositions. Here the charge is that the very function which the publishers undertook to perform had been interfered with and rendered sterile by the acts of the defendants. The significant distinction in the ASCAP situation is that no claim is made that ASCAP participated in or lent itself to any conduct in violation of its duty to market plaintiffs' compositions, which resulted in diminution of income to the plaintiffs. On the contrary, as already noted, the force of the conspiracy was directed against ASCAP as the licensor of its entire catalogue of songs. [] . . . . Under all the circumstances presented, plaintiffs have set forth enough to support their claim of direct injury due to the acts and conduct charged against the defendants so as to entitle them to maintain this claim. Accordingly, this aspect of the defendants' motion is denied.

Plaintiffs' 1200 Songs as to Which No Publisher Contracts Are in Effect There remains for final consideration the defendants' contention with respect to the 1,200 songs as to which no publisher contracts are in effect. These constitute works of which the respective plaintiffs were either a registered proprietor of statutory copyright, a holder of legal title to common law copyright, or are compositions in which a publisher's right has terminated because of cancellation of the contract. The interest of plaintiffs therein was susceptible to damage by the charged conspiracy. Here the plaintiffs claim the publishing and recording market was entirely foreclosed to them by reason of defendants' action. While defendants acknowledge that plaintiffs are the common law or statutory copyright owners of these compositions, they minimize their value and contend that any injury was only collateral and any damage inconsequential. This contention is without substance. Whether the damage is great or slight is a question of fact to be decided by the trier of the fact. Accordingly, the defendants' motion likewise is denied with respect to the 1,200 songs. Settle order on notice in accordance with the foregoing.

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3. Bernard Korman,2 U.S. Position on Collective Administration of Copyright and Anti-Trust Law, 43 J. Copyright Soc'y U.S.A. 158 (Winter 1995)

[] . . . BACKGROUND At the outset, it is significant that there is no official U.S. position on collective administration of copyright. Certainly there is none in any legislation enacted by Congress in the 80 years since ASCAP was founded. One must look to court decisions to infer a national position. The cases generally arise in the context of antitrust challenges. In the United States, when copyright law and policy compete in battle with antitrust law and policy, the way to bet the outcome is on the latter. If we put to one side those collectives which are essentially agents for copyrightowners, such as the National Music Publisher's subsidiary, the Harry Fox Agency, in music; or the Copyright Clearance Center in the book and periodical field; or the Artistic Rights Society in the visual arts world, we are left with licensing of the right of nondramatic public performance of musical works as the only major example of collective administration of copyrights in the United States. And this licensing is carried on in an atmosphere that is far more hostile than is the atmosphere in which sister societies function in the European community. Consider: First, the United States is the only copyright-respecting country where a music user cannot obtain a single public performance license granting access to virtually all of the world's copyrighted music. Multiple licensors charging different fees obviously create problems with bulk music users; they also complicate relations with writers (who can be members or affiliates of only one licensing organization at a time) and publishers (who, through separate corporate or other legal entities, may belong to more than one organization at a time), and with foreign societies whose members must decide where to place their rights for the United States. Second, by way of illustrating just how hostile the American atmosphere is, recall that the first copyright collective administration society in the world was created in the late 18th century in France for and by playwrights led by Beaumarchais. One feature of that organization was the agreement reached with producers on minimum terms for dramatists. Successful playwrights could obtain better than the minimum terms. When the same idea was tried in the United States a century and a half later, by the Dramatists Guild of the Authors' League of America, a producer brought suit under the

Counsel, Dornbush Mensch Mandelstam & Schaeffer, LLP; Intellectual Property Consultant; retired ASCAP General Counsel. Based on a speech given in November, 1994 in Amsterdam at a seminar on Collective Administration of Copyrights in Europe.

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antitrust laws and won-the Court held that, however noble its purpose, the agreement setting minimum fees was price-fixing, a per se violation of the antitrust law. [FN2] [FN2]. Ring v. Spina, 148 F.2d 647 (2d Cir.) 1945. Third, SACEM, the first musical performing rights society in the world, was formed in 1851 to license the right of non-dramatic public performance-a right not granted by Congress to authors and composers of musical works until 1897. In 1914, ASCAP was created. Twenty years later, the United States government, acting at the urging of the radio broadcasting industry, brought suit to dissolve ASCAP as an illegal monopoly under the antitrust laws. (The case never went to judgment. Seven years later, it was dismissed, a new complaint filed and the issues resolved by agreement embodied in a consent decree.) Fourth, in the United States there is not just one antitrust authority, there are fifty-one. Each state has antitrust authority which it may exercise independently of and in addition to federal antitrust authority, as long as the state's action does not contravene federal law. As the Supreme Court put it in 1941 in rejecting ASCAP's effort to enjoin enforcement of certain state statutes then recently enacted for the express purpose of making it difficult or impossible for ASCAP to function within the borders of those states, Congress has not granted individual copyright owners the right to combine and, therefore, states can prohibit or inhibit combinations of copyright owners. Said the Court: And unless constitutionally valid federal legislation has granted to individual copyright owners the right to combine, the state's power validly to prohibit the proscribed combinations cannot be held non-existent merely because such individuals can preserve their property rights better in combination than they can as individuals. We find nothing in the copyright laws which purports to grant to copyright owners the privilege of combining in violation of otherwise valid state or federal laws. [FN3] [FN3]. Watson v. Buck, 313 U.S. 387, 403-404 (1941). Numerous such anti-ASCAP state statutes were enacted in the late 1930's and early 1940's. All were eventually repealed. However, a new campaign has recently begun in New Jersey, and is threatened in other states, to regulate performing right societies at the state level. Hostile federal bills have also been introduced in the House and Senate, but no action on these is expected in the current Congress. They will probably be introduced in the next Congress. Fifth, the government agency with which authors acting collectively through ASCAP or BMI must deal is not a cultural agency, as it is in some European countries. It is the Antitrust Division of the Department of Justice. And that does make a difference. Cultural agencies are, naturally, supportive of authors and their societies: antitrust agencies are, equally naturally, hostile to large organizations that are dominant in any market. I turn now to review the legal histories of ASCAP and BMI, the only major examples in the United States of the kind of full collective administration of copyright that is 79

exemplified by music performing right societies around the world. These histories reveal the basic approach taken in the United States which, succinctly put, is that collective administration is lawful for organizations with large market shares only when it is necessary for a market to function and when users have the option of dealing with the large collective or with the individual members or affiliates. It is not perceived as a good thing, in and of itself, but rather as a kind of necessary evil because it replaces competition among writers and publishers with a pricing mechanism that cannot arrive at prices in the way competitive markets are supposed to do. ASCAP is a traditional performing right society in the sense that it is owned by its writer and publisher members. It is an unincorporated membership association organized under the laws of the State of New York. Its board of directors are all writer or publisher members, elected by the membership. The board sets policies and hires executives to carry them out. ASCAP has been regulated by federal court consent decrees since 1941. A consent decree is a common device in the United States used to resolve government antitrust (and other) claims without a trial and without the party accused of violating a law admitting any wrongdoing. Instead, the accused party agrees to act in accordance with the consent decree and the government gives up its right to sue for any further relief as long as the terms of the consent decree are complied with. It does not bar lawsuits by private parties on the same claims- unreasonable restraint of trade or unlawful monopolythat the government has settled. ASCAP has also functioned in the unique circumstance that it has shared the market with a large organization that is owned and controlled by its most important customer, the broadcasting industry. Broadcast Music, Inc. is a New York corporation, organized in 1939 for the express purpose of providing the radio broadcasting industry with a source of music it would own and control. There is a third licensing organization of some significance, SESAC, founded in 1931. It was a family-owned corporation until a few years ago when it was sold to three entrepreneurs. In terms of revenues, ASCAP is the largest, with annual revenues of about $450,000,000. BMI is second with annual revenues in the order of $315,000,000, and SESAC, much smaller, with revenues believed to be in the order of $10,000,000 annually. For today's purposes, we shall focus on ASCAP and BMI which have entered into consent judgments. SESAC is not so encumbered. AN OUTLINE OF ASCAP'S ANTITRUST HISTORY [FN4] [FN4]. An excellent and very detailed early history of performing rights and the music industry may be found at pp. 301-445 of Radio and Television Rights by Harry P. Warner. Matthew Bender & Co. (1953). Pre-1939:

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From the time it was created in 1914, ASCAP's licensing efforts met with opposition from each new industry or group it sought to license. Indeed, the powerful trade organization of the radio and television broad-casting industry, the National Association of Broadcasters (NAB), was created in the early 1920's for the express purpose of resisting ASCAP's licensing efforts among broadcasters. The growth of the society was greatly stimulated by the development of the radio broadcasting industry. Virtually from its inception, broadcasters recognized that music was an effective and cheap means of attracting audiences for advertising messages. By the 1930's, license fees were paid on the basis of a percentage of each station's advertising revenues. As those revenues grew, so too did ASCAP's fees and the resentment of the broadcasters. Many believed that ASCAP's members should pay them-after all, they argued unsuccessfully in court, it was radio broadcasting that popularized music and led to enhanced sheet music and record sales. The radio broadcasters complained to the Department of Justice, resulting in the 1934 antitrust action I have referred to, in which the government sought the dissolution of ASCAP. The trial began, the government sought a continuance, and the trial was never resumed. 1939-1950: In 1939, differences between ASCAP and the radio industry over the fees to be charged in the next license term to begin on 1 January, 1941 came to a head. There was mention of an increase in license rates from 5% to 71/2% of advertising revenues, a thought the stations resisted strenuously. Moreover, they argued that it was unfair that they were bearing all of the costs of music license fees and the four national radio networks none. In the 1930's, programs furnished by the networks to their local affiliates throughout the country grew in popularity and in economic importance. ASCAP sided with the stations in their argument with the networks, believing that the networks should also be licensed and pay license fees. Led by the networks, acting through the NAB, the industry created BMI in 1939 as a corporation whose stock would always remain in the hands of broadcasters. BMI's mission: to create a repertory large enough so that the radio industry would have access to music other than the ASCAP repertory. Relying on BMI music, then mostly arrangements of works in the public domain published by BMI itself, most broadcasters boycotted ASCAP music for a year beginning in November 1940. Early in 1941, the government dismissed the 1934 complaint and filed new civil and criminal complaints against ASCAP. It is a sign of the hostile view the Government then had of ASCAP that, although ASCAP's main office was in New York and the Attorney General's office was in Washington, these complaints were not filed in either city. Instead, they were filed more than a thousand miles from both cities, in Milwaukee, Wisconsin, before Federal Judge Duffy who, as United States Senator Duffy, had unsuccessfully sponsored bills to abolish the minimum damage provisions of the copyright law on which the success of ASCAP's enforcement activities depended. In March, ASCAP signed a consent decree resolving the civil action. Nolo contendere pleas led to fines disposing of the criminal charges. 81

The networks ultimately agreed to obtain ASCAP licenses, but only after the affiliates agreed to bear half the cost. With that arrangement in place, one of the provisions of the 1941 consent decree required ASCAP to issue licenses to radio networks which would authorize performances of music in network programs by each local affiliated station. (The stations needed ASCAP licenses for performances of ASCAP works in the programs they originated.) This was the first step by which licensing at the source was introduced in the United States. In addition, ASCAP was required to issue per-program licenses to radio stations desiring such forms of agreement. This form of license grants precisely the same right as a blanket license to the user to perform any, some or all of the compositions in the repertory. Like the licenses familiar in Europe, it is blanket in the access it grants the license to use any work in the repertory, in any program. The sole difference is in how the license fee is computed: under the per-program license, the fee must be, at ASCAP's option, either a dollar sum for each program with ASCAP music or a percentage of the station's advertising revenues from programs using a work in the ASCAP repertory. This fee is in contrast to the blanket license fee, which traditionally has been a smaller percentage of the station's advertising revenues from all of its programs. ASCAP was also required to license similarly situated users on a non-discriminatory basis and admit to membership any composer, author or music publisher who met the most minimal requirements. The decree was entered in March, but final new radio license terms were not agreed upon until the fall, and the boycott by substantially all of the stations in the United States continued until November 1941. ASCAP's belief that the radio industry could not survive without performing the popular works of the world's greatest songwriters, American and foreign, proved wrong. The power was in the radio industry. The station's new license agreements called for a fee of 21/414. The largest radio networks agreed to a rate of 23/434. In both cases, deductions from gross advertising revenues were agreed on and, for the networks, the substantial expense of interconnecting their affiliates was deductible. The license term was 18 years, from 1941 through 1958, with ASCAP having the right to terminate the agreement after nine years if it wished to seek a higher rate. Warned that if it sought any rate increase another boycott would ensue, ASCAP did not terminate the agreements and they expired at the end of 1958. In April 1942, a few months after ASCAP had settled its dispute with the radio broadcasters, a complaint was filed by a group of 164 owners of 200 motion picture theaters, asserting that ASCAP's licensing of motion picture exhibitors violated the antitrust laws. They sought damages-treble damages are permitted to plaintiffs who prove damages in antitrust cases-and injunctive relief against threatened loss or damage in the future. The court found that ASCAP's licensing of theaters violated the antitrust laws. The case [FN5] was a serious blow to ASCAP and dramatically altered its method of licensing motion picture theaters in the United States. In holding that ASCAP was an unlawful combination in restraint of trade in violation of 1 of the Sherman Act and an unlawful monopoly within the meaning of 2 of that Act, the court minced no words:

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[FN5]. Alden-Rochelle, Inc., et al. v. ASCAP, 80 F. Supp. 888 (SDNY 1948). Almost every part of the ASCAP structure, almost all of ASCAP's activities in licensing motion picture theaters, involve a violation of the antitrust laws. Although each member of ASCAP is granted by the Copyright Law a monopoly in the copyrighted work, it is unlawful for the owners of a number of copyrighted works to combine their copyrights by any agreement or arrangements, even if it is for the purpose of better preserving their property rights. [FN6] [FN6]. 88 F. Supp. at 893. And again, That ASCAP was moderate in its demands in 1934 and considerate in the prices it fixed after negotiation with the exhibitors, does not detract from the fact that as a monopoly ASCAP had the power to increase those prices to an unreasonable figure by demanding higher license fees, to the financial gain of its members. ASCAP showed to what extent that power could be exercised when in August 1947 it attempted to increase the license fees as much as 200% to 1500%. This price fixing power coupled with the combination of the members [sic] copyrights constitutes an unlawful restraint of trade. [8] Where the power to fix prices is created by an agreement among those who control a substantial part of an industry and who should do business on a competitive basis in a free market, the reasonableness of the prices or the good intentions of the combining units would not absolve them from the charge that they have violated the antitrust laws. [FN7] [FN7]. 88 F. Supp. at 895. The plaintiffs argued that because ASCAP had violated the antitrust law, its license was illegal and they were entitled to three times the amount of license fees they had paid. The Court rejected that argument, pointing out that ASCAP had acquired the legal right to issue licenses and that, although ASCAP had unlawful power to extract unreasonable prices, there was no showing that the license fees actually charged and paid were unreasonable. Accordingly, no damages were awarded. The real injury to ASCAP and its members came in the form of the injunctive relief ordered. Essentially, the new arrangements forfeited all the music in films when exhibited in theaters in the United States and, for the future, required ASCAP members to grant to movie producers not only the synchronization licenses to record music on sound tracks, but also performance licenses for the benefit of exhibitors. This was the second step into the world of source licensing and it differed from the first in one significant respect: the movie producers do not perform their films; the

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exhibitors do. In radio, by contrast, the networks do perform, under the copyright law, when they transmit programs to their affiliates. From 1950 on: The Alden-Rochelle decision was followed promptly by negotiations between ASCAP and the government leading to a new consent decree, the 1950 Amended Final Judgment, which superseded the 1941 decree. Faced with the Alden-Rochelle judgment, and the threat that the radio broadcasters would boycott ASCAP if any effort were made to increase their license fees, ASCAP willingly accepted a new consent decree provision for court determination of reasonable license fees in the event that any user and ASCAP were unable to agree on such fees. That provision would go far to removing the threat that other users would sue ASCAP as an unlawful combination and price-fixer, based on the Alden-Rochelle case. And, ASCAP reasoned, it would remove the threat of boycott: the broadcasters would not dare to take ASCAP's music off the air because ASCAP's fee requests were too high so long as a federal court stood by to determine reasonable fees. The 1950 judgment made a number of other significant changes: it provided that royalty distributions must be based primarily on objective surveys of performances and not, as in the past, subjectively determined by the Board of Directors. And it made meaningful the requirement in the 1941 decree that ASCAP acquire only non-exclusive rights from its members. The 1941 decree had permitted members to issue licenses directly but it expressly allowed ASCAP to require that all fees from such licenses be paid to ASCAP and distributed as all other fees collected by ASCAP are distributed, thus effectively eliminating the members' incentive to license their works directly to users. The 1950 judgment forbade ASCAP from interfering with a member's right to license and, going further, prohibited ASCAP from issuing licenses for specific compositions unless requested to do so by both the user and the member or members-in-interest. The clearance at the source requirement was extended to television networks and to background music services, such as Muzak. And it continued the 1941 requirement that ASCAP not discriminate in fees between licensees similarly situated. []. . . . The last consent decree to which ASCAP and the government agreed was entered in January 1960. It resulted from a Congressional committee's 1957 hearings on ASCAP policies after Congress had received complaints from members that ASCAP's distribution rules favoured large publisher members over small publisher members. The 1960 Order set forth in detail the way in which ASCAP must survey performances and distribute royalties to its members. It has been amended from time to time as ASCAP's Board of Directors deemed it desirable to change the survey or the weights accorded different kinds of performances. Certain basic changes cannot be made without court approval; other changes may be made without court approval, but only after 30 days' notice to the Department of Justice which might object, in which event the matter would be resolved by the court. Only rarely has the government voiced any objection to ASCAP's proposed changes, and when there was objection the court

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sustained ASCAP's proposed change. The Order also provides for an independent person to review the survey system and report on it periodically to the court. In summary, ASCAP's relations with users are regulated so that any user objecting to the fees proposed may have the matter determined by a federal court with the burden on ASCAP to establish the reasonableness of its fee proposal. On the members' side, the detailed distribution rules are embodied in a judgment and changes are subject to court or government approval, with independent, court-appointed monitors keeping watch. THE BMI STORY BMI's history is entirely different. Formed for the express purpose of giving the radio industry its own source of music, a weapon to be used in negotiations with ASCAP, BMI started life as a creature of the CBS and NBC radio networks and the National Association of Broadcasters. Indeed, the first two BMI Presidents, Neville Miller and Justin Miller, were simultaneously the Presidents of the NAB. When it began its operations in 1940, BMI had no music. The radio broadcasters agreed to finance and support it-paying millions of dollars in license fees. In addition, strenuous efforts were made to get the industry to perform BMI music. The BMI repertory was initially built by subsidizing music publishers. For the first ten years of its existence, BMI had affiliation agreements only with publishers. Writers were not paid by BMI unless their works were published by BMI itself. BMI is an extraordinary example of an institution that has undergone sea changes over the course of its existence. Beginning as a creature of the broadcasting industry, with a slogan, When It's BMI, It's Yours' addressed to the broadcasters in mailings and advertisements in trade journals, BMI gradually built up a very significant repertory. For many years it boasted in the advertisements directed to the broadcasting industry of the many millions of dollars it had saved that industry by keeping ASCAP's rates down. BMI was just getting started in 1941, and the government was concentrating on ASCAP. Nevertheless, an antitrust consent decree was entered with BMI, pretty much in line with the ASCAP decree as to network and per-program licensing. One difference was that the BMI decree did not require BMI to make any writer or publisher an affiliate; ASCAP was required in 1941 to admit all comers to membership. The 1941 BMI consent decree proved no impediment to BMI's growth. Starting with no music and millions of dollars, BMI proceeded to build a repertory in ways quite unorthodox for performing rights societies. For example, BMI had no requirement that it treat each affiliate without discrimination, and indeed, much of BMI's initial growth was based on special deals made with publishers and, later, with writers as well. BMI offered guarantees to some and advances to others. In some cases, guaranties were offered to members of ASCAP as inducements to get them to resign from ASCAP. [FN9] [FN9]. Under the 1950 judgment, any member of ASCAP has the right to resign at the end of any calendar year by giving three months' advance written notice.

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[]. . . . Indeed, so successful was BMI that by the early 1960s, it seemed to be acquiring a virtual monopoly on new music. At ASCAP's urging, the government filed a complaint against BMI asserting antitrust violations. A new BMI consent decree resulted, in 1966. Certain provisions of the BMI consent decree addressed ASCAP's complaints. For example, ASCAP had brought to the government's attention the fact that BMI had made favourable arrangements with major publishers under which the publishers agreed not to publish or promote musical works licensed through their ASCAP publishing firms. Article VI(A) forbids that practice in specific terms: (A) Defendant shall not acquire rights of public performance in any musical compositions from any publisher under a contract which requires the officers, directors, owners, or employees of such publisher to refrain from publishing or promoting musical works licensed through another performing rights organization ... Similarly, ASCAP had complained of BMI agreements with publishers controlled by or affiliated with record companies or performers which required the favoring of BMI works over ASCAP works. Thus, subparagraph (B) provides: (B) Defendant shall not enter into any agreement for the acquisition or the licensing of performing rights which requires the recording or public performance of any stated amount or percentage of music, the performing rights in which are licensed or are to be licensed by defendant. ASCAP had also complained that BMI offered guarantees to ASCAP members to get them to resign from ASCAP. In fact, more than 60 scorers of background music in television programs and motion picture films were induced to resign from ASCAP in the early 1960s by such guarantees. The practice was enjoined under Article VII of the consent decree. Also enjoined was BMI's practice in the 1940s and 1950s of granting rebates to broadcasters, but not to any other class of licensee, a kind of dividend in return for the industry's support. The BMI prospectus, when its stock was originally issued, held out no prospect of dividends for stock-holders. Rather, the underlying premise was that dividends would be in the form of lower overall music license fees for the entire broadcasting industry. Article X of BMI's consent decree provides that BMI shall not ... during the term of any license agreement with any class of licensees, ... make any voluntary reductions in the fees payable under any such agreements .... This provision is indicative of BMI's unique status among the world's performing right licensing organisations-no authors' society would announce to a major licensee industry, as BMI would occasionally do, that it has enough money-please take a 25% (or other significant) reduction in your current license fee. In addition to these provisions, BMI is prohibited from the practice of engaging in the commercial publication or recording of music or in the commercial distribution of sheet music or recordings'-a restriction that had not been included in the 1941 consent decree. Other provisions require BMI to enter into affiliation agreements with any writer or publisher who meets the same kind of minimal qualifications as the ASCAP consent 86

decrees had required for many years as a condition for ASCAP membership. BMI is permitted to enter into affiliation agreements for a period of five years, whereas ASCAP is required to permit members to leave at the end of any calendar year on three months' notice. On the crucial matter of distribution of realities, where ASCAP is regulated in detail, BMI is virtually unregulated. The sole requirement of BMI is that it make available to all of its affiliates the performance rates currently utilized by it for all classifications of performance and musical compositions. All BMI need do is publish its current system for weighting performances and works. It complies by publishing certain minimum rates, rates that it is free, if it chooses, to improve for favored affiliates. This is in sharp contrast with the ASCAP consent decree which, in addition to requiring the publishing of weights, established the so-called follow-the-dollar distribution principle. That principle required ASCAP's distribution system to result in royalty distributions in proportion to the receipts from different classes of licensees. Thus, if in a given survey year ASCAP received X percent of its total license fees from local radio stations, Y percent from local television stations, and Z percent from television networks, the survey system had to result in royalties being distributed in the same proportions, X percent of the distributions from local radio performances, Y percent from local television performances, and Z percent from network television performances. BMI, however, is permitted to survey performances and distribute royalties any way it sees fit, even if the result is to pay out more for, say, local radio performances than it receives from local radio licensees if it wishes to do so. In ASCAP, distribution rules are made by writers and publishers; at BMI, no writer or publisher has any voice in how distributions are made. It is important to know, in comparing the two systems, that the published BMI schedule of weights for surveyed performances is very low, so low as not to be competitive with ASCAP. To be competitive, each quarter BMI adds substantial percentages to the base rates. At one time-but no longer-BMI announced the added amounts, e.g. For this quarter only, BMI statements would say, we are adding 75% to the value of local radio performances. The amounts to be added to each surveyed medium are determined by BMI's management on the basis of its judgment as to what best serves BMI's interest at the time. The BMI judgment also requires BMI to avoid discriminating in rates or terms between similarly situation licensees, to license broadcasters on a per-program basis, to license networks as such, without requiring separate licenses for each of the stations on the network, and to permit non-exclusive licenses for specific musical works to be issued by all of the writers and publishers, including the copyright-owners, of the works. From the standpoint of music users, the most significant difference between the 1960 BMI judgment and the 1950 ASCAP judgment is the absence of a court (or any other body) to determine reasonable fees for BMI licenses at the request of music users. For many years, users have sought this change and BMI has agreed to join them in requesting it. The government, for years, declined. However, on June 28, 1994, a motion was filed by BMI seeking amendment of its consent decree so as to provide for a socalled rate court. The procedure for amending consent decrees in the United States 87

requires that public notice be given and an opportunity for interested parties to comment, before the court rules on the proposed change. The government followed its usual practice here, tentatively consenting to the proposed change, but reserving the right to withdraw its consent after considering comments received within a 60-day period. That period was extended to October 28, 1994. The government may be considering the comments received on the date of this seminar. [FN10] [FN10]. In fact, the amendment of BMI's consent decree was approved on the day of the seminar, November 18, 1994. There is one remarkable aspect to the application: BMI conditioned its request on the rate court being a different court-naming a different judge in the United States District Court for the Southern District of New York-than the judge who has responsibility for determining reasonable ASCAP license fees. The government has taken a neutral position on this point. In his affidavit supporting BMI's request, BMI's General Counsel states BMI's view of the need for two busy federal judges to be diverted from other duties to pass on music license fees in the following terms: This guaranteed separation from ASCAP is critical to BMI's motion. BMI steadfastly believes that a joint rate court for both it and ASCAP is less acceptable than the status quo. BMI would rather retain its current position of being without a rate court than risk becoming in any way associated with ASCAP proceedings. BMI has spent its entire existence as ASCAP's principal competitor, distinguishing itself from ASCAP in every practical manner, and cannot compromise its status by being thrown into the same rate court as ASCAP. [FN11] [FN11]. Affidavit of Marvin L. Berenson, sworn to June 28, 1994, 33. BMI's general counsel goes on to state that the impetus for modification of the decree is BMI's desire to remain competitive with ASCAP, satisfy the frequently expressed preference of its customers-the music users- and avoid repeated, expensive, and fruitless antitrust litigation with those users. [FN12] [FN12]. Affidavit of Marvin L. Berenson, 15. Berenson then goes on to set forth facts which illustrate one of the sea changes in BMI that I have referred to. Until after the 1966 BMI consent decree, BMI had been pretty much the kind of organization it was when it began and was headed by presidents who simultaneously served BMI and the NAB, by which I mean that it has been aggressive in seeking sources of music and docile in its license fee demands of broadcasters. [FN13] [FN13]. So much in the broadcasters' corner was BMI in its early days that it filed a lengthy memorandum with the Department of Justice, on October 26, 1949, when ASCAP was negotiating a new consent decree after the

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Alden-Rochelle decision. In that memorandum, BMI urged the Government to insist that the television stations be dealt with as if they were movie theaters-ASCAP members should be required to license producers for the benefit of television broadcasters. Had BMI been successful, its current revenues, as well as ASCAP's, would have been dramatically reduced from 1950 on. BMI was used by negotiating committees of broadcasters as a weapon in their dealings with ASCAP. They would point to its substantial and continuing growth since its early years as a reason for reducing ASCAP fees. Reductions in ASCAP fees won in these negotiations were not accompanied by offsetting increases in BMI's fees. That picture changed when Edward M. Cramer, a long-time BMI attorney who had been a principal negotiator for BMI of its 1966 consent decree, became President of BMI in 1968. The following year, on learning that ASCAP had made a new agreement with CBS for its television network, calling for substantial additional license fees for many past years, BMI demanded a corresponding increase from CBS. CBS refused. BMI terminated the CBS television network license, and the litigation known as CBS v. ASCAP and BMI ensued on December 31, 1969. It was not over until 1981. Berenson's affidavit describes other steps taken by BMI under Cramer's leadership in the 1980's to increase BMI's revenues from the broadcasting industry. These included battles with the All-Industry Committee negotiating for the radio industry in 1984 and a most extraordinary antitrust action brought by BMI against the All-Industry Television Station Music Licensing Committee in 1985. In that case BMI claimed that the television broadcasters were engaged in a buyers' price-fixing conspiracy against BMI-a matter of the child suing its parent. The case was settled after the court denied BMI's motion for a preliminary injunction and granted the Committee's motion for an order requiring BMI to hold a special stockholders meeting. [FN14] [FN14]. BMI v. All-Industry Television Station Music License Committee, 611 F. Supp. 868 (S.D.N.Y. 1985). In connection with that litigation, George Willoughby, a prominent broadcaster who later served as Vice-Chairman of the BMI Board of Directors, a board on which he continues to serve, filed an affidavit in which he recited the benefits to users of the ASCAP consent decree's rate court provision. His affidavit continued by expressing the broadcasters' dissatisfaction with the change in BMI's management philosophy which, as he and other broadcasters perceived it, involved a 180-degree turn from favoring broadcasters to favouring writers and publishers. Said Mr. Willoughby: Curiously, BMI's consent decree contains no corresponding rate court protections to users. While BMI has thus grown very nearly as large as ASCAP in terms of its control of the licensing of musical compositions- driven by its present management's avowed

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philosophy to turn BMI's back on its founding broadcasters and instead embrace composers and music publishers as its sole raison d'etre (see Cramer Aff. 6-7) BMI today enjoys the power to establish prices and terms for its licenses in its sole discretion, without any check upon it. Broadcast and other users dissatisfied with BMI's licensing terms are without any real bargaining options. They can pay what BMI demands, or risk copyright infringement litigation. There is one very limited remaining option: if they are BMI shareholders they can attempt to express their concerns by exercising their rights as shareholders to be heard by BMI's management and Board of Directors. As described below, the proposed exercise of that limited option by King and other shareholders in recent weeks has proven to be unsettling to BMI, which evidently would prefer not to have to account at all to its founding shareholders. That much BMI has made clear by filing this litigation. As Willoughby made clear, Cramer's efforts were perceived by the broadcasterowners of BMI as being more favourable to BMI's writer and publisher affiliates than to them. This proved a sin for which he could not be forgiven, and his services as BMI President were terminated in 1986. Cramer's departure was, on one level, merely an example of the truism that corporate power resides in owners, not managers. The message to BMI's managers is to be aware that there are limits to their independence when it comes to the fees to be charged to broadcasters: to affiliates, the message is that management is limited in what it may do for them when their interests clash with those of BMI's owners. As to Willoughby's observation that BMI enjoys the power to establish prices ... without any check upon it, one might well conclude that Cramer's fate must surely be a check of sorts. SOME IMPLICATIONS OF THE UNITED STATES' POSITION ON COLLECTIVE ADMINISTRATION OF COPYRIGHTS From what we have seen, one must ineluctably conclude that the United States' position on collective administration of copyright is that there should not be a single collecting society, at least for performing rights in music. Nonetheless, after four decades of experience, I am aware of no persuasive economic or legal analysis demonstrating benefits to the public, to users, and to authors and their publishers as a group, in having more than one collecting society. More than one society means duplication of the expenses of licensing users and distributing royalties. These expenses amount to about 20% of gross revenues for both ASCAP and BMI. The argument that there is enormous economic waste in such duplication seems as unanswerable as decapitation, yet there is no doubt that such benefits are widely assumed to exist. The regulation of ASCAP and BMI by consent decrees, while far from consistent, does have the virtue of providing the structure that enabled ASCAP and BMI to win three major antitrust lawsuits they would otherwise almost certainly have lost. The first was the action brought in 1969 by CBS for its television network; the second was the 1978 action brought by hundreds of local television stations; and the third was an action brought against BMI by the National Cable Television Association in 1990. [FN15]

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[FN15]. BMI v. CBS, 441 U.S. 1 (1979), district court decision aff'd on remand sub. nom. CBS v. ASCAP, 620 F.2d 930 (2d Cir. 1980), cert. denied, 450 U.S. 970 (1981); Buffalo Broadcasting v. ASCAP, 744 F.2d 917 (2d Cir. 1984), cert. denied, 469 U.S. 1211 (1985); NCTA v. BMI, 772 F. Supp. 614 (D.D.C. 1991). These cases were all won because the plaintiffs failed to prove the ASCAP and BMI licenses were forced on them, that they had no viable alternative if they wished to perform music. In each case, the courts found that the users simply had not made any realistic effort to obtain the licenses that were available to them directly from members of ASCAP or affiliates of BMI or at the source from producers who could obtain rights from ASCAP members or BMI affiliates. After they were defeated in their antitrust claims, the television broadcasters went to Congress seeking legislation to compel writers and publishers to grant performance licenses to program and film producers so that the broadcasters would be in the same enviable position as motion-picture exhibitors in the United States. They were unsuccessful. Having spoken of cases where the consent decree was a positive factor, I should mention one important 1992 case where it was a negative factor. In litigation concerning the cable television industry, ASCAP sought to license the operators of the cable systems for all of their performances, many of which originate as performances transmitted by cable networks. The cable systems are the box office of the industry. They also hold the economic power in the industry. If they choose not to carry the programs of a cable network, that network must fail. The court ruled that the command of the 1950 Amended Final Judgment as to broadcast network licensing applies to the cable industry. Accordingly, cable systems which deliver programs to homes of subscribers do not require licenses for performances of music in programs supplied by licensed cable networks. In short, cable systems are placed in the same position as local television station affiliates of television networks, and the program suppliers, called cable networks, are deemed to be the same as broadcast networks. ASCAP was barred from licensing the cable systems, as it wished to do, by the 1950 Amended Final Judgment, a judgment entered years before the cable industry developed. The fee aspect of the case is pending, but the issues of the scope and forms of licenses to be granted have been decided. They will be source or through to the viewer licenses and available in both blanket and per-program forms. [FN16] [FN16]. U.S. v. ASCAP, Application of Turner Broadcasting, et al., 782 F. Supp. 778 (S.D.N.Y. 1991), aff'd per curiam, 956 F.2d 21 (2d Cir. 1992), cert. denied, 112 S. Ct. 1950 (1992). In many cases a cable network fully occupies a specific channel of a local cable system. In those cases, the local cable system operator will not need any other license for that channel than the cable network's license, even though it is the operator who (1) 91

receives the subscriber's monthly fees for cable service, and (2) sells advertisers' commercials in time slots made available by the cable network. An important consequence of all the attention paid to antitrust issues in this area is the focus on alternatives to the blanket license. The principal alternative is the per-program license. A per-program license is not a viable economic alternative to the blanket license for most broadcasters unless the rate is substantially lower in relation to the blanket license rate than it has historically been-the ratio of per-program to blanket license rates has been about 4-to-1. A judgment was entered on 6 January, 1994 lowering that ratio for television stations to 1.4 plus an incidental music use fee that would raise the ratio to 1.5 to 1. In addition, the court changed the blanket fee from a percentage of revenues in a flat dollar sum to be paid by the entire industry. The blanket fee for years ending 1995 was set at the amount paid by all stations in 1972, adjusted each year for inflation and by a factor of 50% of the growth in the number of television stations. The period involved for most stations is February 1983 through December 1995. For the network-owned stations, it is 1978 through 1995. I mention these time periods to indicate how long it has taken to get important fee issues resolved in judicial proceedings. The decision is being appealed. It was argued in the Court of Appeals on September 26, 1994. Meanwhile, the fee for the per-program license has been held invalid as to the network owned stations. When one considers the general problem of setting reasonable license fees, it quickly becomes clear that this area is not the same as the area in which, in the United States, there is a great body of law: rate proceedings concerning the rate public utilities may charge for gas, electricity or telephone service. There, agencies know the investments that have been made and the costs involved, and set fees for the purpose of arriving at reasonable returns on those investments or costs. Here, obviously, there is no known basis for arriving at investments in, or the cost of creating, a great repertory of music on which to base a reasonable return. Rather, the question is, What is the value of the right to the particular user? In the United States, the court has been given the task of defining a rate or range or rates that approximate the rates that would be set in a competitive market. [FN17] The thought is crystal clear. The task is not. It is extremely difficult because there is no competitive market for a blanket license from a performing right society. The Supreme Court of the United States has said that the product offered by ASCAP (or BMI) is a unique product, a whole which is greater than the sum of its parts. [FN18] [FN17]. ASCAP v. Showtime, 912 F.2d 563, at 576 (2nd Cir. 1990). [FN18]. CBS, 442 U.S. 1, 21-22 (1979). The District Judge with jurisdiction over ASCAP's license fees has stated his view as to how the court should approach the problem of determining reasonable fees for broadcasters, namely, to start with the last agreement reached and examine the circumstances under which it was reached. If the fee is deemed fair at the time it was 92

agreed on, the court would start with that as the base fee and adjust it based on changes in licensee gross revenues and music use since the last agreement was reached. [FN19] [FN19]. United States v. ASCAP, Applications of Capital Cities, ABC, Inc. and CBS, Inc., 831 F. Supp. 137, 164 (S.D.N.Y. 1993). In a number of proceedings to determine reasonable license fees, highly respected economists have advanced their views, always coinciding with the views of the party for whom they were testifying, as to how the court should determine a reasonable fee. In articles, economists are prone to speak of the value of the marginal song in the repertory and of the marginal cost of composing a song. It was very refreshing to hear the testimony of ASCAP's expert in the Capital Cities, ABC and CBS matter advise the court that economists really cannot help him because the concept of a reasonable fee is not one for economic analysis. Therefore, he suggested what in fact the court did: look to the parties' past agreements and work from them. Ignore, he suggested, the users' cries of abuse of monopoly power. See what was in fact agreed on when, if the terms were thought to be unreasonable, the users could have come to court then and said so. The fact is that users always claim that fees sought are too high. If one with power to determine license fees starts with the view that the society has and uses undue market power, the user will benefit. An example, I believe, is the present result in the local television rate case, where the court accepted the stations' argument that when they consented to a judgment that certain fees were reasonable, they did not really mean it. ASCAP's reliance on that consent judgment of reasonableness proved misplaced. The court found the prior fees not reasonable for the full term they had been in effect by mutual agreement and went on to create a whole new approach to both blanket and per program fees. If, on the other hand, the determiner of reasonable fees concludes that the society has been reasonable and the agreement made was fair when made, presumably it will serve as the base from which future fees will be arrived at and the society will do better. But in either case, the problem is absence of objective standards. Those who administer performing right societies have a very difficult task on two fronts. They must arrive at subjective judgments as to the value of the right they are licensing to users. The evidence is that reasonable people in different parts of the world, even in contiguous countries, differ dramatically in how they value the same right when licensed to the same kind of user. When it comes to distributing revenues, the problem is equally or perhaps even more difficult and certainly equally subjective. What is the value of a given type of use compared with other types of uses of music? Again, when one looks at the lack of harmony in the way in which music is valued by societies, it is obvious that reasonable people can differ dramatically. [] . . . . Clearly, standards of some kind would be very helpful in the world of collective licensing. However, history teaches that standards are not easy for authors' representatives and representatives of users, or legislators, to agree on. At the CISAC Congress held in Washington this past September, a distinguished speaker predicted that by the year 2000, half the members of ASCAP will be computers. If that prediction is 93

accurate, and computers create original music, perhaps they will also produce standards acceptable to all. In the absence of that happy solution, the experience in the United States strongly suggests that the battle over fees will continue unabated, unless and until new technologies combine with a new philosophy of authors' rights leading to a radical change such as a single clearing house for authors of musical (and other?) works. 4. Notes and Questions

The cases and article above all raise thorny issues that courts and policymakers still wrestle with today. Go back and skim through the cases and Bernard Korman's discussion of the ASCAP/BMI antitrust litigation history and try to identify where you see some of the following themes discussed: (1) the impact of technology on the law and business of music and the inability of the law to keep pace with future uses of technology (let alone current uses); (2) the tensions and competing claims of right between creators of devices, creators of content, and consumers; (3) rights of composers versus rights of the owners of sound recordings; (4) conflict (or complement) between federal and state law; (5) a Lockean approach that provides one the benefit of the fruits of his labor; (6) the balance between promotion (conduct that increases the demand for a product) and substitution (conduct that decreases sales of a product by providing a substitute); (7) the tension between the efficiency of collective action in enforcing rights and a free market approach to property. What other themes/issues do you see raised in several of the cases or in Korman's discussion? Do you see any corrollaries to current issues in music law or business?

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III. Third Class: Enforcement and Expansion of Performance and Duplication Rights in Compositions and Sound Recordings

A.

Enforcement of Performance Rights by Publishers and Composers

1. Performance of Musical Compositions During Motion Picture Exhibitions: M. Witmark & Sons v. Pastime Amusement Co., 298 F. 470 (D.S.C. 1924) ERNEST F. COCHRAN, District Judge. The plaintiff, a New York corporation, sues the defendant, a South Carolina corporation, for infringement of a copyright of a musical composition entitled Kiss Me Again. This song was composed by Henry Blossom, and the music by Victor Herbert, and their rights were duly assigned to plaintiff. . . . On April 16, 1915, the plaintiff copyrighted this composition by publishing it with the following notice on the first page of the publication, to wit, Copyrighted MCMXV by M. Witmark & Sons, and by depositing on the 17th of April, 1915, in the office of the Register of Copyrights two complete copies, accompanied by claim of copyright, and a certificate of copyright register was thereupon issued by the Register of Copyrights. Prior to the time of the alleged infringement the plaintiff executed to the American Society of Composers, Authors, and Publishers (called the Performing Rights Society) what is termed an assignment of performing rights, whereby it sold and transferred to the Performing Rights Society, from the date of the instrument until January 1, 1926, the exclusive right of public performance for profit of the musical composition referred to, and the instrument itself provides that the words 'public performance shall be construed to mean nondramatic renditions with musical instruments. . . . . The plaintiff is a member of the American Society of Composers, Authors, and Publishers, and on February 18, 1922, entered into an agreement with the various members of the said society whereby said society was appointed the agent of the various members. This agreement is as follows: To All Whom These Presents may Concern- Greeting: The undersigned music publishers are members of the American Society of Composers, Authors, and Publishers. The said Society is our duly appointed agent for the licensing of all institutions wherein copyrighted music is publicly performed for profit, as to the musical compositions of which we are copyright proprietors. 95

Please, therefore, take notice that no agent, employee, or representative of any of the undersigned is vested with authority or power to grant, under any circumstances, to any firm or individual, any right to publicly perform for profit, the musical compositions of which we are or may be the copyright proprietors. Please take further notice that the possession of a printed copy or orchestration of any of such compositions does not imply or convey any right to public performance thereof for profit, irrespective of whether such printed copy is received as a gift, obtained by purchase, or otherwise. The defendant conducts a moving picture theater at the Princess Theater in the city of Charleston. Admission fees are charged, but no specific charge is made for the music. The defendant employed an organist to render music during the moving picture performances. Her instructions were to play music that would be appropriate to the scenes as they were thrown upon the screen, and she endeavored to interpret the pictures with the music. She was furnished from time to time the scores of musical compositions, but the music to be played was left largely in the first instance to her discretion, and she did not confine the music played to the scores furnished her. There is no satisfactory evidence that the score of Kiss Me Again was ever furnished her. On the contrary, she had never seen the publication, but had heard the music and played it by ear. While she had large discretion in what music she would play, nevertheless she was subject to the orders of the manager, and played any pieces he might direct, and discontinued playing any pieces he might order discontinued. According to her testimony, unless appropriate music was played, one would get fired. About the 16th of January, 1922, a moving picture entitled Ladies Must Live was shown at the defendant's theater. During the course of the performance the organist played the chorus from Kiss Me Again. The organist testified substantially that, as the picture was thrown upon the screen, the chorus of Kiss Me Again flashed through her mind, and she thought it would be appropriate and played it. She gave no reasons for her opinion. A witness for the plaintiff, who heard the chorus played during the performance, testified that it seemed appropriate. Neither did he give any reasons for his opinion. There is no evidence before the court as to the plot and nature of the picture entitled Ladies Must Live. The evidence is uncertain whether the chorus was played only one time, or twice during the same performance, or twice on the same day during different performances. But certainly there is no satisfactory evidence that it was played on any other day. The manager testified that, upon being informed that the chorus had been played, he gave orders for it to be discontinued, for the reason that he did not like it, as he considered the theme old and worn-out and that the public were tired of it. The organist testified, also, that she received this order and did not play the chorus again. There is nothing tending to discredit their testimony. The evidence tending to show that the chorus was played during more than one performance is too vague and unsatisfactory, and I therefore find that it was played only during one performance. 96

The music of the song (including the chorus) consists of 79 bars; the chorus alone of 42 bars. The words (including the chorus) consist of two stanzas of eight lines each, the second stanza forming the chorus; but, as sung, the last line of the chorus is repeated, so that the chorus, when sung, contains nine lines. A witness for the plaintiff testified that the playing of the chorus took about 5 minutes; the organist testified that it took about 45 seconds. The counsel arranged for the music to be played for me, and at this performance the whole piece took 57 seconds, the chorus only 27 seconds. []. . . The defendant's next defense is that the organist is an independent contractor, over whose actions while playing the defendant had no control. He who employs a musician to perform in an exhibition for profit, under a contract by which the musician has authority to play whatever compositions are, in accordance with her judgment, appropriate and fitting, must be held responsible for all that is done by the musician. By giving her that authority the employer acquiesces in and ratifies whatever she does. If under his contract he has parted with the right to exercise this control over her actions without making inquiry as to what she intends to play, he yet must be deemed to have taken part, and to have given her the general right to perform copyright compositions. Harms v. Cohen (D.C.) 279 Fed. 276, 278. In this case, however, the fact is that the defendant did retain and exercise control over the organist in reference to her selections. The defense of independent contractor is overruled. The next defense set up by the defendant is that there has been no performance of the musical composition in question for profit, as no charge is made for the privilege of listening to the playing of music, which is purely incidental and not a part of the motion pictures exhibited by the defendant. Copyright Act, Sec. 1 (Comp. St. Sec. 9517), provides that the proprietor shall have the exclusive right to perform the copyrighted work publicly for profit if it be a musical composition and for the purpose of public performance for profit. The defendant argues that, inasmuch as no charge was made specifically for the music, but only the general admission fee at the door, there is no performance for profit. I think the question is settled by the decision of the Supreme Court in the two cases of Herbert v. Shanley Co. and John Church Co. v. Hilliard Hotel Co., 242 U.S. 591, 37 Sup.Ct. 232, 61 L.Ed. 511. The two cases were heard together, and one decision was rendered. In one case the plaintiff was the owner of a lyric comedy in which there is a march entitled From Maine to Oregon. It took out a separate copyright for the march and published it separately. The defendant hotel company caused this march to be performed in the dining room of the Vanderbilt Hotel for the entertainment of guests at meal times, in the way now common, by an orchestra employed and paid by the company. In the other case, the plaintiffs were the composers and owners of a comic opera entitled Sweethearts, containing a song of the same title as the leading feature in the performance. There is a copyright for the opera and also one for the song, which is published and sold separately. The Shanley Company caused the song to be sung by professional singers upon a stage in 97

its restaurant on Broadway, accompanied by an orchestra. The Supreme Court held that the fact that no charge was made for the music did not prevent the performance from being one for profit, that the defendant's performances were not eleemosynary, that they were a part of the total for which the public pays, and the fact that the price of the whole is attributed to a particular item which those present are expected to order is not important. The defense that no charge is made for the music must be overruled. The next defense interposed is that there is no infringement, because merely the chorus of the copyrighted work was played. The language of the learned counsel for the defendant is as follows: 'Musical compositions, within the meaning of the Copyright Act, are not 'performed' in defendant's theater for profit, inasmuch as merely short excerpts of musical selections of varying length are played while the motion picture is being exhibited, the character of the selection constantly and rapidly changing with the shifting of the scenes and the action upon the screen. To constitute infringement it is not necessary that the whole, or even a large portion, of the work shall have been copied, and on the principle of de minimis non curat lex it is necessary that a material and substantial part of it shall have been copied; it being insufficient that mere words or lines have been abstracted. Between these extremes no precise and definite rules can be cited. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute piracy. The question is one of quality rather than quantity, and is to be determined by the character of the work and the relative value of the material taken. It has been said that in deciding questions of this sort the court must look to the nature and objects of the selections made, the quantity and value of the materials used, and the degree in which this may prejudice the sale, diminish the profits, or supersede the objects of the original work. Perris v. Hexamer, 99 U.S. 674, 25 L.Ed. 308; Marks v. Leo Feist (C.C.A.) 290 Fed. 959; Eggers v. Suns Sales Corporation (C.C.A.) 263 Fed. 373; 13 C.J. 1116. The same objection made here was made in Harms v. Cohen (D.C.) 279 Fed. 276, and was overruled. Counsel for defendant insists, however, that the precise question under the present Copyright Act has not been passed upon by any appellate court, and that in the case of Harms v. Cohen, Judge Thompson did not have before him certain facts and arguments on the history of the present act and the changes made during the course of its enactment by Congress. In view of counsel's earnest and able argument, I have given full consideration to the question as presented by him from this new standpoint. In order that this new view of the question may be clearly understood, I shall state it in counsel's own language, which is as follows:

98

The question whether the playing of a few measures of music coincident with the showing of a motion picture is a public 'performance of a 'musical composition' is therefore thoroughly novel, and by reason of the vast growth of the motion picture theater business of extreme and vital importance. In order to arrive at a solution to the question, not only should the statute be carefully scrutinized, but every other source of information must be sought out and examined. Copyright Act March 4, 1909, Sec. 1(e), being Comp. St. Sec. 9517, reads: 'That any person entitled thereto. * * * shall have the exclusive right * * * to perform the copyrighted work publicly for profit if it be a musical composition. When, in response to the message of the President, Congress in 1905 sought to amend and consolidate the copyright laws, there were introduced two bills, Senate Bill No. 6330 and House Bill No. 19,853, which were referred to the committee on patents, and numerous sessions were held and volumes of testimony taken, during the years 1906 and 1908, before they were finally enacted into law in the form of the Act of March 4, 1909. When the bill was first introduced and sent to the conference committee for consideration thereon it contained this clause (section 1(f)): 'That the copyright secured by this act shall include the sale and exclusive right to publicly perform a copyrighted musical work or any part thereof. * * * During the progress of the hearings the words 'or any part thereof were dropped, the words 'for profit' were added, and the law emerged in its present form as follows: 'That any person entitled thereto * * * shall have the exclusive right * * * to perform the copyrighted work publicly for profit if it be a musical composition.' The committee on patents went into the matter exhaustively, summoned hundreds of witnesses, lawyers, musicians, publishers and the leaders of every business and profession to be affected by the act, and the result of all their wisdom was the present act, without the words 'or any part thereof. I was very much impressed with this presentation of the matter, and at first I thought the decision of the Supreme Court in Carey v. Donohue, 240 U.S. 430, 36 Sup.Ct. 386, 60 L.Ed. 726, L.R.A. 1917A, 295 (a case not cited by counsel, however), was decisive of this question. . . . I have upon reflection become satisfied that entirely different considerations moved Congress in omitting the words or any part thereof from the present Copyright Act. The present Copyright Act (section 25 (Comp. St. Sec. 9546)) gives a right of action for an infringement, but neither the present nor the former act undertook to define the word infringement. Under the former law, it was clearly settled that the taking of any substantial and material part of the copyrighted work constituted an infringement, and, if Congress had permitted the words or any part thereof to remain in the section now under consideration, it would not have been unreasonable to suppose that Congress 99

intended to change the existing rule and to allow damages for the taking of any part of the copyrighted work, no matter how trivial or unsubstantial. Congress may have considered, also, that the words or any part thereof, as applied to musical compositions, would be unnecessary, in view of section 3 of the act (Comp. St. Sec. 9519), which protects all the copyrightable component parts of the work copyrighted. If the construction contended for by the defendant should be adopted, then the fairest portion of a musical composition, the very parts that make it popular and valuable, may be taken with impunity, provided the work is not taken in its entirety. Such a construction should not be made, save where Congress has clearly expressed such intention. I think the reasonable view is that Congress deemed it wiser not to define how much of a work would have to be taken to constitute an infringement, but to leave each case for judicial determination, in the light of principles which had already been firmly established. [] . . . . Counsel argues that the use of a part of a song by moving picture shows is merely as a vehicle to put the pictures across. If such use were permitted, the thousands of moving picture shows throughout the country could use the very best portions of copyrighted songs for their own benefit, until the public were thoroughly tired of hearing them, and the owners would have little left of any value. I cannot think that Congress intended any such result. [] . . . . Applying the principles above stated to the case now before the court, I think that there was the use of such a substantial and material part of the plaintiff's song as to constitute an infringement. It is true that the chorus constitutes only a part of the song, but it constitutes half of it, and the whole chorus was played. It was easily distinguished by the witness for the plaintiff, who was present at the performance. In order to assist the court on this point, counsel for the parties arranged for the music to be played before me. I do not profess any special knowledge or judgment on such matters, but the impression made on hearing the music was that the chorus would probably be as pleasing to the public as any other part of the song, possibly more so. In view of all the circumstances, I think the chorus is a substantial and material part of the song, and the playing of it for profit constitutes an infringement. The next defense is that the agreement between plaintiff and other copyright proprietors, dated February 18, 1922, constitutes a monopoly, in violation of the Sherman Act. It is not necessary to decide whether the agreement constitutes a monopoly, nor whether the rights affected can be considered trade or commerce, nor whether interstate commerce is directly affected or not. The Sherman Act does not make the party to an interstate monopoly an outlaw. It does not prevent such a party from asserting his rights in the courts. It does not give any person the right to trespass upon the rights of such party, or to deprive him unlawfully of his property. There is no provision in the act divesting the members of combinations in restraint of trade of their property. The illegality of such a combination cannot be tested collaterally. The act itself provides the remedies against the illegal combination and these remedies are exclusive. Geddes v. Anaconda Mining Co., 100

254 U.S. 590, 593, 41 Sup.Ct. 209, 65 L.Ed. 425; Wilder Mfg. Co. v. Corn Products Co., 236 U.S. 165, 174, 35 Sup.Ct. 398, 59 L.Ed. 520, Ann. Cas. 1916A, 118; Paine Lumber Co. v. Neal, 244 U.S. 459, 471, 37 Sup.Ct. 718, 61 L.Ed. 1256; U.S. v. Babcock, 250 U.S. 328, 331, 39 Sup.Ct. 464, 63 L.Ed. 1011. []. . . Let a final decree be prepared and entered, providing for permanent injunction, and recovery by plaintiff of the sum of $250 damages, attorney's fees, and costs, in accordance with the foregoing conclusions.

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2. Radio Broadcasts of Music Over Hotel Loudspeakers: Buck v. Jewell-La Salle Realty Co., 283 U.S. 191 (1931) Mr. Justice BRANDEIS delivered the opinion of the Court. These suits were brought in the federal court for Western Missouri by the American Society of Composers, Authors and Publishers, and one of its members, against the Jewell-La Salle Realty Company, which operates the La Salle Hotel at Kansas City. The hotel maintains a master radio receiving set which is wired to each of the public and private rooms. As part of the service offered to its guests, loud-speakers or headphones are provided so that a program received on the master set can, if desired, be simultaneously heard throughout the building. Among the programs received are those transmitted by Wilson Duncan, who operates a duly licensed commercial broadcasting station in the same city. Duncan selects his own programs and broadcasts them for profit. There is no arrangement of any kind between him and the hotel. Both were notified by the plaintiff society of the existence of its copyrights, and were advised that, unless a license were obtained, performance of any copyrighted musical composition owned by its members was forbidden. Thereafter a copyrighted popular song, owned by the plaintiffs, was repeatedly broadcast by Duncan, and was received by the hotel company and made available to its guests. Suits were brought for an injunction and damages for the alleged infringements. [FN1] After a hearing on stipulated facts, relief against the hotel company was denied on the ground that its acts did not constitute a performance within the Copyright Act. Buck v. Duncan (D. C.) 32 F.(2d) 366. Plaintiffs appealed to the Circuit Court of Appeals, which certified the following question: FN1. In No. 138, Duncan was joined as a defendant and a decree pro confesso for failure to answer was entered against him. In No. 139, the hotel company was the only defendant. See, also, No. 140, decided this day. 283 U. S. 202, 51 S. Ct. 407, 75 L. Ed. 978. Do the acts of a hotel proprietor, in making available to his guests, through the instrumentality of a radio receiving set and loud speakers installed in his hotel and under his control and for the entertainment of his guests, the hearing of a copyrighted musical composition which has been broadcast from a radio transmitting station, constitute a performance of such composition within the meaning of 17 USC Sec. 1(e)? The provision referred to is section 1 of the Copyright Act of March 4, 1909, c. 320, 35 Stat. 1075 (17 USCA s 1(e), which provides that Any person entitled thereto, upon complying with the provisions of this title, shall have the exclusive right: * * * (e) To perform the copyrighted work publicly for profit if it be a musical composition and for the purpose of public performance for profit.

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The parties agree that the owner of a private radio receiving set who in his own home invites friends to hear a musical composition which is being broadcast would not be liable for infringement. For, even if this be deemed a performance, it is neither public nor for profit. Compare Herbert v. Shanley Co., 242 U. S. 591, 37 S. Ct. 232, 61 L. Ed. 511. The contention that what the hotel company does is not a performance within the meaning of the Copyright Act is urged on three grounds. First. The defendant contends that the Copyright Act may not reasonably be construed as applicable to one who merely receives a composition which is being broadcast. Although the art of radio broadcasting was unknown at the time the Copyright Act of 1909 was passed, and the means of transmission and reception now employed is wholly unlike any then in use, [FN2] it is not denied that such broadcasting may be within the scope of the act. [FN3] Compare Kalem Co. v. Harper Bros., 222 U. S. 55, 32 S. Ct. 20, 56 L. Ed. 92, Ann. Cas. 1913A, 1285; Gambart v. Ball, 14 C. B. (N. S.) 306, 319. The argument here urged, however, is that, since the transmitting of a musical composition by a commercial broadcasting station is a public performance for profit, control of the initial radio rendition exhausts the monopolies conferred, both that of making copies (including records) and that of giving public performances for profit (including mechanical performances from a record); and that a monopoly of the reception, for commercial purposes, of this same rendition, is not warranted by the act. The analogy is invoked of the rule under which an author who permits copies of his writings to be made cannot, by virtue of his copyright, prevent or restrict the transfer of such copies. Compare BobbsMerrill Co. v. Straus, 210 U. S. 339, 28 S. Ct. 722, 52 L. Ed. 1086. This analogy is inapplicable. It is true that control of the sale of copies is not permitted by the act, [FN4] but a monopoly is expressly granted of all public performances for profit. FN2 Station KDKA, erected in Pittsburg in 1920, was the pioneer commercial broadcasting station in the world. The Radio Industry, Harvard Graduate School of Business Administration Lectures, 19271928, pp. 195-209. The latest amendment of the Copyright Act, which added new classes of copyrights, was that of August 24, 1912, c. 356, 37 Stat. 488 (17 USCA ss 5, 11, 25). FN3 See M. Witmark & Sons v. L. Bamberger & Co. (D. C.) 291 F. 776; Remick & Co. v. American Automobile Accessories Co. (C. C. A.) 5 F. (2d) 411, 40 A. L. R. 1511; Remick & Co. v. General Electric Co. (D. C.) 16 F.(2d) 829. See, also, Messager v. British Broadcasting Co., Ltd., (1927) 2 K. B. 543, reversed, (1928) 1 K. B. 660, affirmed, (1929) A. C. 151; Chappell & Co., Ltd. v. Associated Radio Co. of Australia, Ltd., (1925) Victorian Law Reports, 350. FN4 The rule of the Bobbs-Merrill Case was enacted into the Copyright Act of March 4, 1909, c. 320, s 41, 35 Stat. 1075, 1084 (17 USCA s 41). See H. Rep. No. 2222, 60th Cong., 2d Sess., February 22, 1909, p. 19. It is 103

applicable only where there is no relation between the manufacturer of the copy and the purchaser which might make the latter liable as a contributory infringer. Compare Scribner v. Straus, 210 U. S. 352, 355, 28 S. Ct. 735, 52 L. Ed. 1094. In the case at bar, the stipulated facts show that there was no relation whatever between the broadcaster and the hotel company, so that, even if the broadcasting constituted an infringement, there would be no question of contributory infringement. The defendant next urges that it did not perform because there can be but one actual performance each time a copyrighted selection is rendered, and that, if the broadcaster is held to be a performer, one who, without connivance, receives and distributes the transmitted selection, cannot also be held to have performed it. But nothing in the act circumscribes the meaning to be attributed to the term performance, or prevents a single rendition of a copyrighted selection from resulting in more than one public performance for profit. While this may not have been possible before the development of radio broadcasting, the novelty of the means used does not lessen the duty of the courts to give full protection to the monopoly of public performance for profit which Congress has secured to the composer. Compare Kalem Co. v. Harper Bros., 222 U. S. 55, 63, 32 S. Ct. 20, 56 L. Ed. 92, Ann. Cas. 1913A, 1285. No reason is suggested why there may not be more than one liability. And, since the public reception for profit in itself constitutes an infringement, we have no occasion to determine under what circumstances a broadcaster will be held to be a performer, or the effect upon others of his paying a license fee. The defendant contends further that the acts of the hotel company were not a performance because no detailed choice of selections was given to it. In support of this contention it is pointed out that the operator of a radio receiving set cannot render at will a performance of any composition, but must accept whatever program is transmitted during the broadcasting period. Intention to infringe is not essential under the act. Compare Hein v. Harris (C. C.) 175 F. 875, affirmed (C. C. A.) 183 F. 107; Stern v. Jerome H. Remick & Co. (C. C.) 175 F. 282; Haas v. Leo Feist, Inc. (D. C.) 234 F. 105; M. Witmark & Sons v. Calloway (D. C.) 22 F.(2d) 412, 414. And knowledge of the particular selection to be played or received is immaterial. One who hires an orchestra for a public performance for profit is not relieved from a charge of infringement merely because he does not select the particular program to be played. Similarly, when he tunes in on a broadcasting station, for his own commercial purposes, he necessarily assumes the risk that in so doing he may infringe the performing rights of another. Compare Harms v. Cohen (D. C.) 279 F. 276, 278; M. Witmark & Sons v. Pastime Amusement Co. (D. C.) 298 F. 470, 475, affirmed (C. C. A.) 2 F.(2d) 1020; M. Witmark & Sons v. Calloway (D. C.) 22 F.(2d) 412, 413. It may be that proper control over broadcasting programs would automatically secure to the copyright owner sufficient protection from unauthorized public performances by use of a radio receiving set, [FN5] and that this might justify legislation denying relief against those who in using the receiving set innocently invade the copyright, [FN6] but the existing statute makes no such exception.

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FN5 If the copyrighted composition had been broadcast by Duncan with plaintiffs' consent, a license for its commercial reception and distribution by the hotel company might possibly have been implied. Compare Buck v. Debaum (D. C.) 40 F.(2d) 734. But Duncan was not licensed; and the position of the hotel company is not unlike that of one who publicly performs for profit by the use of an unlicensed phonograph record. FN6 See the so-called Vestal Copyright Bill, which failed of passage in the Seventy-First Congress. H. R. 12549, 71st Cong. 2d Sess. s 15(d). Compare note 10, infra. See, also, arguments concerning the broadcasting of copyrighted selections as set forth in Joint Hearings before the Committees on Patents, on S. 2328 and H. R. 10353, 69th Cong. 1st Sess. April 5-9, 1926; Hearings before the Senate Committee on Patents, on H. R. 12549, 71st Cong. 3d Sess. January 28, 29, 1931, pp. 52, et seq.; Sen. Rep. No. 1732, Id. February 17, 1931, p. 29. Second. The defendant contends that there was no performance because the reception of a radio broadcast is no different from listening to a distant rendition of the same program. [FN7] We are satisfied that the reception of a radio broadcast and its translation into audible sound is not a mere audition of the original program. It is essentially a reproduction. As to the general theory of radio transmission, there is no disagreement. All sounds consist of waves of relatively low frequencies which ordinarily pass through the air and are locally audible. Thus music played at a distant broadcasting studio is not directly heard at the receiving set. In the microphone of the radio transmitter the sound waves are used to modulate electrical currents of relatively high frequencies which are broadcast through an entirely different medium, conventionally known as the either. These radio waves are not audible. [FN8] In the receiving set they are rectified; that is, converted into direct currents which actuate the loud-speaker to produce again in the air sound waves of audible frequencies. The modulation of the radio waves in the transmitting apparatus, by the audible sound waves, is comparable to the manner in which the wax phonograph record is impressed by these same waves through the medium of a recording stylus. [FN9] The transmitted radio waves require a receiving set for their detection and translation into audible sound waves, just as the record requires another mechanism for the reproduction of the recorded composition. In neither case is the original program heard; and, in the former, complicated electrical instrumentalities are necessary for its adequate reception and distribution. Reproduction in both cases amounts to a performance. Compare Buck v. Heretis (D. C.) 24 F.(2d) 876; Irving Berlin, Inc., v. Daigle (C. C. A.) 31 F.(2d) 832, 833. In addition, the ordinary receiving set, and the distributing apparatus here employed by the hotel company are equipped to amplify the broadcast program after it has been received. Such acts clearly are more than the use of mere mechanical acoustic devices for the better hearing of the original program. The guests of the hotel hear a reproduction brought about by the acts of the hotel in (1) installing, (2) supplying electric current to, and (3) operating the radio receiving set and loud-speakers. There is no difference in substance between the case where a hotel 105

engages an orchestra to furnish the music and that where, by means of the radio set and loud-speakers here employed, it furnishes the same music for the same purpose. In each the music is produced by instrumentalities under its control. [FN10] FN7 This argument is based upon an elaborate discussion of the theory of radio transmission and reception. Defendant's hypothesis is that the energy which actuates the receiving apparatus-that is, which varies the currents in the receiver to produce audible sound-is part of the original energy exerted upon the air by the performer. Hence it is urged that the radio receiving set is no more than a mechanical or electrical ear trumpet for the better audition of a distant performance. FN8 Sound waves, which can pass through air, water, or solids, and radio or other electromagnetic waves, which operate in the either, behave similarly in many respects. Yet not only are the latter inaudible, but they travel at relatively tremendous speeds. Sound waves travel at ordinary temperatures approximately 1,100 feet a second; electromagnetic waves with the speed of light, or about 186,000 miles per second. This velocity is dependent solely upon the particular medium through which the various kinds of waves travel. See Morecroft, Principles of Radio Communication, c. IV. Thus broadcast time signals can be heard practically simultaneously on receiving sets hundreds of miles apart; ordinary sound signals cannot. Compare as to the general theory of radio communication, Radio Corp. of America v. Twentieth Century Radio Corp. (C. C. A.) 19 F. (2d) 290, 291; Chappell & Co., Ltd., v. Associated Radio Co. (1925) Victorian Law Reports, 350, 357, 358. FN9 The impressions on the phonograph disc are of course permanent whereas the modulations of the carrier radio waves, continually emitted by the sending station, are ephermeral. But in both cases the means used to transmit the selection being played are wholly different from the musical sounds themselves, and require an additional mechanism, not under the control of the performer, for the recreation of the original music. FN10 At the present time there are renewed proposals for the revision of the Copyright Act in the light of new conditions. See summaries in the Annual Report of the Register of Copyrights (1928), pp. 6-13; Id. (1929) pp. 16-24; Id. (1930), pp. 8-13. See, also, the so-called Vestal Bill, the most recent of these, introduced in the Seventy-first Congress on May 22, 1930. H. R. 12549, 71st Cong., 2d Sess., s 1(d), s (g); Sen. Rep. No. 1732, Id., 3d Sess., Feb. 17, 1931, pp. 4-5, 29. Compare Hearings before the Senate Committee on Patents on H. R. 12549, Id., January 28-29, 1931, pp. 25, passim. This measure was debated at length in the Senate, but was

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not reached on the final calendar. See 74 Cong. Rec., pt. IV, pp. 62136849; Id., pt. V, p. 33. Third. The defendant contends that there was no performance within the meaning of the act because it is not shown that the hotel operated the receiving set and loud-speakers for profit. Unless such acts were carried on for profit, there can, of course, be no liability. But whether there was a performance does not depend upon the existence of the profit motive. The question submitted does not call for a determination whether the acts of the hotel company recited in the certificate constitute operation for profit. The question certified, is answered yes.

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3. Radio Broadcasts of Live Musical Performances: M. Witmark & Sons v. L. Bamberger & Co., 291 F. 776 (D.N.J. 1923) LYNCH, District Judge. The defendant conducts a gigantic department store in the city of Newark, N.J., and sells its wares at retail throughout the state of New Jersey, if not in adjacent states. Since February, 1922, it has conducted a radio department wherein radio equipment of all sorts is sold. It has also established and conducts a licensed radio broadcasting station known as Station WOR, from which vocal and instrumental concerts and other entertainment and information are broadcasted on a wave length of 405 meters. The plaintiff owns the musical composition entitled Mother Machree, and under the Copyright Act of 1909 (Comp. St. Sec. 9517 et seq.) possesses the exclusive right to perform that composition publicly for profit. The plaintiff, alleging that the defendant performed, or caused to be performed, its composition Mother Machree by means of singing from the broadcasting station WOR and that this performance by the defendant was publicly for profit, prays that a preliminary injunction issue restraining the defendant from the further performance of its copyrighted song. The defendant denies that this broadcasting of the copyrighted Mother Machree was or is for profit, its contention being that because everything it broadcasts is broadcasted without charge or cost to radio listeners, there is no performance publicly for profit within the meaning of the Copyright Act. It being extremely unlikely that any facts developed upon final hearing will alter the undisputed situation now presented, and both parties desiring a speedy final determination of the issue, the court is disposed, at this time, to register its conclusions as to the law. The question simmered down is: What is meant by the words publicly for profit? Fortunately, those words have been construed by the United States Supreme Court in the case of Herbert v. Shanley Co., 242 U.S. 591, 37 Sup.Ct. 232, 61 L.Ed. 511, a case frequently referred to by counsel on both sides of this cause. The facts there were as follows: The Shanley Company conducted a public restaurant in New York City wherein was located a platform or small stage upon which orchestral selections were rendered, and songs were sung by paid performers for the entertainment of persons visiting the restaurant. No admission fee was charged. The owner of a copyrighted song known as Sweethearts, alleging that his property rights were being invaded because his song was being sung by Shanley's performers, sought injunctive relief in the United States courts for the Southern District of New York. This relief was denied, it being the view of the District Judge (and the Judges of the Circuit Court of Appeals concurred) that because no admission was charged at the door of the restaurant, there was no performing of the song Sweethearts publicly for profit within the meaning of the Copyright Act. The United 108

States Supreme Court, however, took a different view. Justice Holmes, in speaking for the court of last resort, had this to say: If the rights under the copyright are infringed only by a performance where money is taken at the door they are very imperfectly protected. Performances not different in kind from those of the defendants could be given that might compete with and even destroy the success of the monopoly that the law intends the plaintiffs to have. It is enough to say that there is no need to construe the statute so narrowly. The defendants' performances are not eleemosynary. They are part of a total for which the public pays, and the fact that the price of the whole is attributed to a particular item which those present are expected to order, is not important. It is true that the music is not the sole object, but neither is the food, which probably could be got cheaper elsewhere. The object is a repast in surroundings that to people having limited powers of conversation or disliking the rival noise give a luxurious pleasure not to be had from eating a silent meal. If music did not pay it would be given up. If it pays it pays out of the public's pocket. Whether it pays or not the purpose of employing it is profit and that is enough. Decrees reversed. It is strenuously argued in behalf of the defendant in the instant cause that it was the view of the court of last resort that the facts, as developed in the Shanley situation, showed that there was a direct charge to those who patronized the restaurant- a direct charge for and on account of music which was collected from persons dining there. So far as appears, there was only one item charged for, to wit, food. In fixing the charge for food the restaurant proprietor undoubtedly took into consideration many items in addition to the cost of the food and the preparation and service of it. There was attributed to the item food the musical entertainment and other attractions afforded the patrons. The diner at no time had the subject of entertainment charge called to his attention except in the high price of the food which he was permitted to procure. This, in our opinion, was an indirect way of collecting the charge for musical entertainment from those who were there to pay. To constitute a direct charge, it seems to us that there would have to be an admission fee charged at the entrance to the dining hall or a specific fee for entertainment would have to be charged the listener either while in or about to leave the premises. There is another case which strikes us as being quite helpful. In the case of Harms et al. v. Cohen, 279 Fed. 276, District Judge Thompson held that the playing of copyrighted music by a pianist in a motion picture theater was an infringement of the copyright and relief was accorded the owner thereof. In that case an admission charge was collected from all who entered the theater for the purpose of viewing motion pictures. Incidental to the exhibition was the playing by a pianist of music which, to the pianist, seemed appropriate to the development of the play or events which were being portrayed on the screen. No selection of music was made up by the proprietor of the theater or consented to by him in any way. There was no fee for musical entertainment called to the attention of the patron of the theater at any time.

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The pianist being permitted to use his own judgment as to what musical selections to play, played the musical composition entitled Tulip Time from the Ziegfield Follies, 1919. It was held by Judge Thompson that the furnishing of music was an attraction which added to the enjoyment of persons viewing the motion pictures, and that although the proprietor had nothing whatever to do with the selection of the musical compositions rendered, the fact that the pianist was paid by the proprietor to supply the music moved the court to hold that the proprietor was furnishing music publicly for profit. There being no direct charge on account of musical entertainment furnished, there was what we term an indirect charge or fee therefor. If our construction of the opinion of the Supreme Court in the Shanley Case, supra, be sound, that is to say, if there was found to be an indirect charge for the use of copyrighted musical compositions because of which the court held that the owner of the copyright was entitled to relief, the problem now presented for solution is not so difficult. We have already stated that the Bamberger Co. makes no direct charge to those who avail themselves of the opportunity to listen to its daily broadcasting programmes. The question then is: Is the broadcasting done for an indirect profit? In determining this we think it is proper to look to the reason for broadcasting at all. Why was it done? What was it done for? What was the object, or to use the term of Justice Holmes: What was the purpose? We know the purpose of the restaurant proprietor, and we know the purpose of the proprietor of the moving picture theater. What was the purpose of the defendant in expending thousands of dollars in establishing and operating this broadcasting station? Adopting the language of Justice Holmes, the defendant is not an eleemosynary institution. A department store is conducted for profit, which leads us to the very significant fact that the cost of the broadcasting was charged against the general expenses of the business. It was made a part of the business system. Next we have the fact, already referred to, that the defendant sells radio receiving instruments and accessories. Whether a profit has resulted from such sales is not material in determining the object. It is within the realms of probability that many departments of a large store at times show losses rather than profits. Paraphrasing the comments of Justice Holmes, Whether it pays or not the purpose is profit, and that is enough. While the defendant does not broadcast the sale prices of its wares, or refer specifically thereto, it does broadcast a slogan which appears in all of the defendant's printed advertisements. That slogan, which is, L. Bamberger & Co., One of America's Great Stores, Newark, N.J., is broadcasted at the beginning of every periodical programme and also at the conclusion thereof. A person listening to the programme of WOR will hear at the beginning the statement that L. Bamberger & Co. regard themselves as the proprietors of one of America's great stores. If the development or enlargement of the business of the department store was completely out of the minds of the promoters of this broadcasting enterprise, is it 110

reasonable to believe that the slogan, L. Bamberger & Co., One of America's Great Stores, Newark, N.J., would be announced to all listeners one, two, three, four, five, or six times a day? If the defendant desired to broadcast for purely eleemosynary reasons, as is urged, is it not likely that it would have adopted some anonymous name or initial? Undoubtedly the proprietors in their individual capacities have done and do many things of a public spirited and charitable nature on account of which they are entitled to the highest commendation. But it does not appear, and the court cannot believe, that those charitable acts are all labeled or stamped, L. Bamberger & Co., One of America's Great Stores, Newark, N.J. There is another point which, although striking us as immaterial, deserves some comment. The defendant argues that the plaintiff should not complain of the broadcasting of its song because of the great advertising service thereby accorded the copyrighted number. Our own opinion of the possibilities of advertising by radio leads us to the belief that the broadcasting of a newly copyrighted musical composition would greatly enhance the sales of the printed sheet. But the copyright owners and the music publishers themselves are perhaps the best judges of the method of popularizing musical selections. There may be various methods of bringing them to the attention of music lovers. It may be that one type of song is treated differently than a song of another type. But, be that as it may, the method, we think, is the privilege of the owner. He has the exclusive right to publish and vend, as well as to perform. Considering all of the facts and circumstances, it is the conclusion of the court that the broadcasting of the defendant was publicly for profit within the meaning of the Copyright Act as that meaning has been construed by the United States Supreme Court. A decree will be entered in favor of the plaintiff, but restraint will be withheld pending a review of this opinion. B. Duplication and Performance of Sound Recordings

1. Waring v. WDAS Broadcasting Station, 327 Pa. 433, 194 A. 631 (1937) STERN, Justice. The problems involved in this case have never before been presented to an American or an English court. They challenge the vaunted genius of the law to adapt itself to new social and industrial conditions and to the progress of science and invention. For the first time in history human action can be photographed and visually reportrayed by the motion picture. Sound can now be mechanically captured and reproduced, not only by means of the phonographs for an audience physically present, but, through broadcasting, for practically all the world as simultaneous auditors. Just as the birth of the printing press 111

made it necessary for equity to inaugurate a protection for literary and intellectual property, so these latter-day inventions make demands upon the creative and everevolving energy of equity to extend that protection so as adequately to do justice under current conditions of life. Plaintiff, since 1917, has been the conductor of an orchestra which is incorporated under the laws of the state of New York as Fred Waring's Pennsylvanians, Inc. Plaintiff owns 98 shares of the corporation out of a total of 100, the other 2 being issued merely for the purpose of qualifying the necessary directors. The orchestra consists of about 25 musicians; it has achieved an outstanding reputation in the musical world for artistic rendition of popular music. Orginally it confined its performances to dance halls and the vaudeville stage; later it began to play over the radio, and entered into a contract with the Ford Motor Company to broadcast on one night of each week for the sum of $13,500 for each performance. Some years ago the orchestra started to make phonograph records for the Victor Talking Machine Company. The two which are the subject of the present controversy were manufactured in 1932; they consisted of two songs, the publishers of the songs, who owned the copyright, licensing the Talking Machine Company to use them for making records, but not for public performance for profit. The Talking Machine Company paid the orchestra $250 for each recording. Plaintiff, foreseeing the likelihood of the records being used by broadcasting companies for reproduction over the radio, discussed the matter with the Talking Machine Company, and, as a result, it was agreed between them that a label should be placed upon the records reading: Not licensed for radio broadcast.' [FN1] They were then sold in the ordinary course of business to the Talking Machine Company's dealers, and by the latter to individual purchasers, the retail price being 75 cents apiece. FN1. The license given to the Victor Talking Machine Company by the publishers also expressly required that the company place such a legend upon the records. Defendant, a Delaware corporation, is the owner of a radio station and engaged in operating it for profit. Some of its programs over the air are accompanied by advertising for which it receives a direct remuneration; others are part of its general service of entertainment for the public and for the commercial benefit of its advertisers as a whole. Having purchased one of the records made by plaintiff's orchestra, and having obtained a license to broadcast the songs from the American Society of Composers, Authors and Publishers, to which both the publishers and the composers had assigned the exclusive right of public performance under the copyright, defendant broadcast the records as a part of its sustaining programs. The playing of the records was accompanied by the customary announcement over the radio that they were mechanical reproductions of the orchestra's renditions. Plaintiff filed a bill in equity to enjoin defendant from broadcasting the

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records. The court below granted the injunction prayed for, from which decree defendant has taken the present appeal. There are three major questions involved: (1) Have performers-in this case an orchestraany enforceable property rights in their artistic interpretation of the work of a composer? (2) If so, to what extent can such rights be reserved at the time of what the law designates as publication? (3) As ancillary to such rights, under what circumstances can performers be afforded equitable relief on the ground of unfair competition? 1. The property rights claimed by plaintiff are admittedly not the subject of protection under existing copyright laws. The Act of March 4, 1909, c. 320, section 5, 35 Stat. 1076, as amended by the Act of August 24, 1912, c. 356, 37 Stat. 488, 17 U.S.C.A. 5, enumerates the various literary and artistic productions which may be copyrighted, including books, lectures, dramatic and musical compositions, works of art, photographs, and motion pictures. The creator of such a work may protect his property rights therein, but the statute does not recognize any right of a performing artist in his interpretative rendition of a musical composition, or in the acting of a play, composed by another. [FN2] It is to the common law, therefore, that the performer must turn, and the question arises whether an actor or a musician has any property rights at common law in his performance. This problem is presented now for the first time because, until the invention of the motion picture and the sound films, an actor's interpretation of a play was necessarily evanescent and ephemeral. It might be made the subject of mimicry, [FN3] but the actual performance itself, the postures, gestures, voices, and motions, could not be identically reproduced. So also in the case of music, an instrumental or vocal performance by a soloist or an orchestra, once rendered, was lost forever except as repeated by the artist himself, until the advent of sound-recording devices permitted the fixation of the performance upon a disc or record which could be played and replayed, and even broadcast, at will, with the result that a single performance by the artist is now sufficient, generally speaking, to allow the rendition to be heard over and over again through an indefinite course of years. Under such circumstances it naturally has become important for the artist-in the present case we are concerned more particularly with the musician-to guard against his field of lucrative return being thus drastically narrowed, and to protect his artistic product against its indiscriminate reproduction, especially by those who, in a commercial sense, are in the nature of competitors. FN2. Prior to 1909 mechanical devices, such as music rolls, discs, and records, for the reproduction of sound, were held to be beyond the scope of the copyright laws and not to infringe protected works which they were the means for audibly reproducting. Stern v. Rosey, 17 App.D.C. 562; White-Smith Music Publishing Co. v. Apollo Company, 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655, 14 Ann.Cas. 628. By the statute of that year, however, the composer or copyright proprietor was given control, in accordance with the provisions of the act, of the manufacture and use of such devices, although the right of copyright was not extended to the mechanical reproductions themselves. (See the report of the Patent 113

Committee to the House of Representatives which accompanied the presentation of the act and purported to explain its scope.) By the provisions of the act, if the owner of the musical copyright uses or permits the use of records for mechanical reproduction of the work, any other person may make similar records upon the payment to the copyright proprietor of a royalty of 2 cents on each record, although this does not permit their use for public performances for profit. See Irving Berlin, Inc., v. Daigle (C.C.A.) 31 F.(2d) 832. The measure of protection thus given in the case of pianola records and phonograph discs is to the composer, not the performer. Plaintiff, in 1935, made application to the Register for a copyright on the personal interpretation by Fred Waring of the musical composition Lullaby of Broadway. The application was rejected, the Register of Copyrights saying, inter alia: There is not and never has been any provision in the Act for the protection of an artist's personal interpretation or rendition of a musical work not expressible by musical notation in the form of legible copies although the subject has been extensively discussed both here and abroad.' FN3. It has been said that the owner of the production rights of a play cannot enjoin an imitation of the actors and stage business. See Savage v. Hoffmann (C.C.) 159 F. 584; Chappell & Co., Ltd. v. Fields (C.C.A. ) 210 F. 864; Shafter's Musical Copyright, pp. 66, 67. Such imitations, while they may resemble the original, are not identical with it. In the present case, however, it is not a copy or imitation but the exact reproduction of the performance itself, transfixed by a mechanical process, for which protection is sought. At common law, rights in a literary or artistic work were recognized on substantially the same basis as title to other property. Such rights antedated the original copyright act of 8 Anne c. 19, and, while it has been uniformly held that the rights given by the act supersede those of the common law so far as the act applies, [FN4] the common-law rights in regard to any field of literary or artistic production which does not fall within the purview of the copyright statute are not affected thereby. [FN5] FN4. Donaldsons v. Becket, 4 Burr. 2408, 98 Eng.Rep. 257; Wheaton v. Peters, 8 Pet. (33 U.S.) 591, 8 L.Ed. 1055; Holmes v. Hurst, 174 U.S. 82, 19 S.Ct. 606, 43 L.Ed. 904. FN5. It has long been a subject of discussion as to whether common-law rights in literary property survive publication, and whether, therefore, the copyright statute has restricted or broadened such rights. The early English view seems to have been that publication does not defeat the rights of proprietorship at common law. Millar v. Taylor, 4 Burr. 2303, 98 Eng.Rep. 201; Donaldsons v. Becket, 4 Burr. 2408, 98 Eng.Rep. 257. The 114

American view has been to the contrary, and holds that the common-law right is confined to the first publication. Wheaton v. Peters, 8 Pet. (33 U.S.) 591, 8 L.Ed. 1055; Caliga v. Inter Ocean Newspaper Co., 215 U.S. 182, 30 S.Ct. 38, 54 L.Ed. 150; Palmer v. De Witt, 47 N.Y. 532, 7 Am.Rep. 480; Bamforth v. Douglass Post Card & Machine Co. (C.C.) 158 F. 355. Does the performer's interpretation of a musical composition constitute a product of such novel and artistic creation as to invest him with a property right therein? [FN6] It may be said that the ordinary musician does nothing more than render articulate the silent composition of the author. But it must be clear that such actors, for example, as David Garrick, Mrs. Siddons, Rachel, Booth, Coquelin, Sarah Bernhardt, and Sir Henry Irving, or such vocal and instumental artists as Jenny Lind, Melba, Caruso, Paderewski, Kreisler, and Toscanini, by their interpretations, definitely added something to the work of authors and composers which not only gained for themselves enduring fame but enabled them to enjoy financial rewards from the public in recognition of their unique genius; indeed, the large compensation frequently paid to such artists is testimony in itself of the distinctive and creative nature of their performances. The law has never considered it necessary for the establishment of property rights in intellectual or artistic productions that the entire ultimate product should be the work of a single creator; such rights may be acquired by one who perfects the original work or substantially adds to it in some manner. Thus, in Wood v. Boosey, 2 L.R.Q.B. 340, it was held that a person who arranged the score of an opera for the pianoforte thereby created an independent musical composition in which he had a right of property apart from that of the composer of the opera itself. In Walter v. Lane, [1900] A.C. 539, it was held that one who reported for the Times a public address, together with a description of the meeting at which it was delivered, had property rights therein distinct from and additional to those of the speaker. The translation of a novel, or its dramatization, vests a distinct property right which is entitled to the same protection as is extended to the original. Fleron v. Lackaye (N.Y.Super.) 14 N.Y.S. 292. A dramatic work, even though composed of selections from literary compositions which are public property, may possess such originality in its construction, or be so unique in its dramatic effect, as to be the proper subject of protected ownership. Aronson v. Baker, 43 N.J.Eq. 365, 371, 12 A. 177. A musical composition in itself is an incomplete work; the written page evidences only one of the creative acts which are necessary for its enjoyment; it is the performer who must consummate the work by transforming it into sound. If, in so doing, he contributes by his interpretation something of novel intellectual or artistic value, he has undoubtedly participated in the creation of a product in which he is entitled to a right of property, which in no way overlaps or duplicates that of the author in the musical composition. All that need now be decided is that such a property right inheres in the case of those artists who elevate interpretations to the realm of independent works of art. FN6. The case of Musical Performers' Protection Association, Ltd., v. British International Pictures, Ltd., 46 T.L.R. 485, was concerned with the 115

construction of an English statute, passed in 1925, known as the Dramatic and Musical Performers' Protection Act, which imposed a fine upon any one making, selling, or using a record of a performance of any dramatic or musical work without the written consent of the performers. It held that this act was not intended to confer upon musicians any property rights in their rendition which they could enforce by enjoining the use of a sound record of their performance, but merely provided a fine as the penalty for violation of its provisions. In the present case the evidence is uncontradicted that plaintiff's orchestra measured up to this standard. A number of witnesses, themselves of fame in the musical world, testified, and the learned chancellor found, that Waring's Pennsylvanians' were nationally and even internationally acclaimed as unique in their artistry. Indeed, as already stated, the fact that they receive from the Ford Motor Company $13,500 for a radio performance is striking testimony to that effect. That their performances lie in the field of popular rather than classical music has no bearing upon the question of the existence of a property right in their productions. [] . . . 2. It being established that plaintiff has common-law property rights which are the subject of protection in equity, we come to a consideration of the question whether they were lost by such a publication as would, according to the general American doctrine, completely terminate them. When plaintiff and his orchestra performed for the Talking Machine Company they knew that, although intended for use in phonographs, the records could be played before a microphone and broadcast over the radio. Indeed, it was to prevent such use that the arrangement was made to stamp them with the legend, Not licensed for radio broadcast. Was this attempted restriction, of which notice was thus given to all who came into possession of the records, legally effective to accomplish the purpose for which it was designed? Could the publication effected by the making and sale of the records be limited in its generality so as to enable plaintiff to prevent their use for broadcasting? The law has consistently distinguished between performance and publication,-between what is sometimes referred to as a limited or qualified and a general publication. When the communication is to a select number upon condition, express or implied, that it is not intended to be thereafter common property, the publication is then said to be limited. * * * In American Tobacco Co. v. Werckmeister, 207 U.S. 284, 28 S.Ct. 72, 52 L.Ed. 208, 12 Ann.Cas. 595, the applicable rule is quoted with approval from Slater on the Law of Copyright and Trade Marks as follows: It is a fundamental rule that to constitute publication there must be such a dissemination of the work of art itself among the public as to justify the belief that it took place with the intention of rendering such work common property. * * * The test is whether there is or is not such a surrended as permits the absolute and unqualified enjoyment of the subject-matter by the public or the members thereof to whom it may be committed. Werckmeister v. Amer. Lith. Co. (C.C.A.) 134 F. 321, 68 L.R.A. 591, 596.' Berry v. Hoffman, 125 Pa.Super. 261, 267, 116

268, 189 A. 516, 519. Thus the production of a play, Ferris v. Frohman, 223 U.S. 424, 32 S.Ct. 263, 56 L.Ed. 492, the delivery of a lecture, Nutt v. National Institute, Inc., for the Improvement of Memory (C.C.A.) 31 F.(2d) 236, the playing of a musical composition, McCarthy & Fischer, Inc. v. White (D.C.) 259 F. 364, the exhibition of a painting, American Tobacco Co. v. Werckmeister, 207 U.S. 284, 28 S.Ct. 72, 52 L.Ed. 208, 12 Ann.Cas 595, a performance over the radio, Uproar Co. v. National Broadcasting Co. (D.C.) 8 F.Supp. 358, does not constitute a publication which operates as an abandonment to public use. In determining whether or not there has been such a publication, the courts look partly to the objective character of the dissemination and partly to the proprietor's intent in regard to the relinquishment of his property rights. There are some comparatively early cases to the effect that once a general publication occurs it cannot properly be limited by restrictions and reservations. . . . . Such authorities seem to rest upon an assumed doctrine that restrictions and servitudes cannot be judicially recognized when imposed as conditions attaching to the sale of chattels. Apollinaris Co. v. Scherer (C.C.) 27 F. 18; National Skee-Ball Co., Inc. v. Seyfried, 110 N.J.Eq. 18, 158 A. 736; Keeler v. Standard Folding-Bed Co., 157 U.S. 659, 15 S.Ct. 738, 39 L.Ed. 848. See Chafee, Equitable Servitudes on Chattels, 41 Harvard Law Review 945. The most common type of case in which such restrictions have been held unenforceable is where an attempt was made by a manufacturer or the owner of a patent, trademark, or copyright to fix a minimum resale price. Taddy & Co. v. Sterious & Co., [1904] 1 Ch. 354; McGruther v. Pitcher, [1904] 2 Ch. 306; Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086; Park & Sons Co. v. Hartman (C.C.A.) 153 F. 24, 12 L.R.A.(N.S.) 135; Dr. Miles Medical Co. v. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502; Bauer v. O'Donnell, 229 U.S. 1, 33 S.Ct. 616, 57 L.Ed. 1041; 50 L.R.A.(N.S.) 1185, Ann.Cas.1915A, 150; Straus v. Victor Talking Machine Co., 243 U.S. 490, 37 S.Ct. 412, 61 L.Ed. 866, L.R.A.1917E, 1196, Ann.Cas.1918A, 955; Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8, 38 S.Ct. 257, 62 L.Ed. 551, Ann.Cas.1918C, 447; Garst v. Hall & Lyon Co., 179 Mass. 588, 61 N.E. 219, 55 L.R.A. 631; Garst v. Wissler, 21 Pa.Super. 532; [FN7] or where there was a provision that the article sold should be used only in connection with other property manufactured by the vendor; Motion Picture Patents Company v. Universal Film Manufacturing Co., 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871, L.R.A.1917E, 1187 Ann.Cas.1918A, 959; Carbice Corporation of America v. American Patents Development Corporation, 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819. These cases depend essentially upon the fact that the attempted restrictions, being in restraint of trade, were against public policy, while in some of the other cases referred to the rights sought to be reserved after publication could have been protected by copyright of the work under the statute, and therefore there was no real need for equitable relief. FN7. Recently, however, the Supreme Court has held that a state statute permitting the fixing of the resale price of certaintrade-marked commodities was not unconstitutional. Old Dearborn Distributing Co. v. Seagram-Distillers Corporation, 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, 106 A.L.R. 1476. 117

Where public policy or some other determinative consideration is not involved, why should the law adopt an immutable principle that no restrictions, reservations, or limitations can ever be allowed to accompany the sale of an article of personal property? As a matter of fact, there have been many cases, notably in England, in which restrictive covenants and conditions accompanying the alienation of chattels have been enforced. De Mattos v. Gibson, 4 De G. & J. 276, 45 Eng.Rep. 108; Werderman v. Socit Gnrale d'Electricit, 19 Ch.Div. 246; National Phonograph Co. of Australia, Ltd. v. Menck, [1911] A.C. 336 (as to patented articles); Erskine Macdonald, Ltd. v. Eyles, [1921] 1 Ch. 631; Lord Strathcona Steamship Co. v. Dominion Coal Co. [1926] A.C. 108; P. Lorillard Co. v. Weingarden (D.C.) 280 F. 238; In re Waterson, Berlin & Snyder Co. (C.C.A.) 48 F.(2d) 704. [FN8] Familiar examples in this country are the ticket-scalper cases, Nashville, Chattanooga & St. Louis Ry. Co. v. McConnell (C.C.) 82 F. 65; Bitterman v. Louisville & Nashville R. Co., 207 U.S. 205, 28 S.Ct. 91, 52 L.Ed. 171, 12 Ann.Cas. 693; and the trading stamp cases, Sperry & Hutchinson Co. v. Mechanics' Clothing Co. (C.C.) 128 F. 800; Id. (C.C.) 135 F. 833; Sperry & Hutchinson Co. v. Temple (C.C.) 137 F. 992; Sperry & Hutchinson Co. v. Louis Weber & Co. (C.C.) 161 F. 219; Sperry & Hutchinson Co. v. Fenster (D.C.) 219 F. 755; Sperry & Hutchinson Co. v. Benjamin (C.C.) 221 F. 512. It is true that in addition to the question of public policy other factors may weigh against the imposition of such restrictions in many, perhaps most, instances. Thus an attempted restriction, instead of being aimed at the accomplishment of a useful commercial, industrial, or social purpose, may be merely capricious and serve only to clog the free and untrammeled circulation of personal property. Again, in the case of some restrictive covenants limiting the use of chattels, it might be difficult, if not impossible, to detect breaches so as to make legal enforcement practical. There is no reason, however, why an ancient generalization of law should be held invariably to apply to cases in which modern conditions of commerce and industry and the nature of new scientific inventions make restrictions highly desirable. Mere aphorisms should not be permitted to fetter the law in furthering proper social and economic purposes. [FN9] Since a rule of law ceases when its reason ceases, latitude should be allowed for intelligent discrimination in the enforcement of equitable servitudes on chattels similar to those upheld by the courts in the case of building restrictions and other limitations upon the use of land. [FN10] FN8. The tendency in the United States has been to apply the doctrine of restrictive agreements to personal property when not regarded as an unlawful restraint of trade or in violation of public policy. Harlan F. Stone, The Equitable Rights and Liabilities of Strangers to a Contract, 18 Columbia Law Review 291, 310. FN9. I think that at least it is safe to say that the most enlightened judicial policy is to let people manage their own business in their own way, unless the ground for interference is very clear. Dissenting opinion of Mr. Justice Holmes in Dr. Miles Medical Co. v. Park & Sons Co., 220 U.S. 118

373, 411, 31 S.Ct. 376, 386, 55 L.Ed. 502. See, also, dissenting opinion of Mr. Justice Holmes in Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 519, 37 S.Ct. 416, 61 L.Ed. 871, L.R.A.1917E, 1187, Ann.Cas.1918A, 959, and concurring opinion of Mr. Justice Brandeis in Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8, 27, 38 S.Ct. 257, 62 L.Ed. 551, Ann.Cas.1918C, 447. See, also, Prof. E. C. S. Wade, Restrictions on User, 44 Law Quarterly Review 51, 64. FN10. Just as modern needs have brought equitable restrictions on land, of which the old common law knew nothing, into existence, they may also call for a limited departure from the free transfer of chattels for the sake of promoting desirable business practices wholly strange to Coke's day. Chafee, Equitable Servitudes on Chattels, 41 Harvard Law Review 945, 983. In the present case it is clear that the restriction affixed to the records, Not licensed for Radio Broadcast, was not unreasonable, nor did it operate in restraint of trade. It was intended to effect a legitimate purpose; indeed, unless such a restriction can be imposed and enforced, it will be impossible for distinguished musicians to commit their renditions to phonograph records-except possibly for a prohibitive financial compensation-without subjecting themselves to the disadvantages and losses which they would inevitably suffer from the use of the records for broadcasting. Such a restriction, therefore, works for the encouragement of art and artists. Moreover, it does not limit the use of the records in private homes or even public halls where a breach could not readily be detected or enjoined; the employment of the records for radio broadcasting would immediately become a matter of general knowledge. Uses of the records on phonographs and for broadcasting purposes are so radically distinct as to belong practically to two totally different fields of operation. It thus appears that no valid reason exists why the restriction attached to the manufacture and sale of the records in this case should not be enforced in equity. It may, indeed, be said, in conclusion upon this point, that in a sense plaintiff was not imposing a restriction in connection with a sale by him of a chattel. The chattel here consisted of the phonograph record. This the plaintiff never owned. What he granted was merely the incorporeal privilege of reproducing the rendition of the song indented upon the chattle sold by the Talking Machine Company. The reservation or restriction imposed by him was to limit the extent of this privilege. The title to the physical substance and the right to the use of literary or artistic property which may be printed upon or embodied in it are entirely distinct and independent of each other. Werckmeister v. American Lithographic Co. (C.C.) 142 F. 827, 830; Stephens v. Cady, 14 How. (55 U.S.) 528, 14 L.Ed. 528; Stevens v. Gladding, 17 How. (58 U.S.) 447, 15 L.Ed. 155. Defendant contends that there was no contract between plaintiff and the Victor Talking Machine Company by which the latter agreed that the records should not be used for 119

broadcasting purposes. There was, however, an understanding between them that the Talking Machine Company would seek to prevent such use so far as lay within its power and would imprint the legend upon the records for that purpose. The notice used was fairly and reasonably sufficient to make purchasers realize the existence and extent of the restriction imposed upon their use of the records. 3. It having been demonstrated, first, the plaintiff had common-law rights of property in his orchestra's renditions of the songs, and, second, that there is no logical or practical reason why the restriction placed upon the use of the records should not be enforced in equity, it remains to point out an additional ground upon which plaintiff may rely for the protection of such rights against invasion and abuse by defendant, namely, that of unfair competition. A leading authority on this aspect of the case is International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211, 2 A.L.R. 293. The Associated Press, at a great expenditure of labor and capital, gathered and distributed the news among its members. The International News Service, a rival organization, pirated the news thus accumulated. The Associated claimed that this was accomplished partly by inducing some of its employees surreptitiously to furnish the news to the International, partly by persuading some of the members of the Associated to turn over the news to the International before publication, and partly by the International itself copying the news from bulletin boards and the early editions of the newspapers of Associated members and embodying it in the newspapers of its own members in competition with those of the Associated. In so far as the case deals with the obtaining of the news by the International's inducing employees and members of the Associated to breach their contractual obligations by furnishing the news to a competitor, we are not here concerned with it. In that respect it is similar to a multitude of others which hold that such a fraudulent and dishonest acquisition of the fruits of another's labor, or trespass upon a trade secret, will be enjoined in equity. [FN11] But it was ruled in the Associated Press Case that, even apart from any fraud or the inducing of the breach of a contract or moral obligation, the Associated could enjoin the International from publishing in its own newspapers the news which had been gathered by the Associated and which appeared on the bulletin boards and in the Associated newspapers, until a sufficient time had elapsed to destroy its commercial value as news. The court held that, while there was probably no absolute property in the news as such, an injunction should be granted on the ground of unfair competition, saying (248 U.S. 215, at page 236, 39 S.Ct. 68, 71, 63 L.Ed. 211, 2 A.L.R. 293): Obviously, the question of what is unfair competition in business must be determined with particular reference to the character and circumstances of the business. The question here is not so much the rights of either party as against the public but their rights as between themselves. * * * And, although we may and do assume that neither party has any remaining property interest as against the public in uncopyrighted news matter after the moment of its first publication, it by no means follows that there is no remaining property interest in it as between themselves. * * * Regarding the news, therefore, as but the material out of which both parties are seeking to make profits at the same time and in the same field, we hardly can fail to recognize that for this purpose, and as between them, it must be regarded as quasi property, irrespective of the rights of either 120

as against the public. Extending this thought, the court further said (248 U.S. 215, at pages 239-242, 39 S.Ct. 68, 63 L.Ed. 211, 2 A.L.R. 293): FN11. Dodge Co. v. Construction Information Co., 183 Mass. 62, 66 N.E. 204, 60 L.R.A. 810, 97 Am.St.Rep. 412; Exchange Telegraph Co., Ltd. v. Gregory & Co. (1896) L.R. 1 Q.B. 147; Exchange Telegraph Co. v. Central News, Ltd. [1897] 2 Ch.D. 48; Board of Trade v. Hadden-Krull Co. (C.C.) 109 F. 705; Board of Trade v. Cella Commission Co. (C.C.A.) 145 F. 28; Moore v. New York Cotton Exchange (C.C.A.) 296 F. 61. Defendant insists that when, with the sanction and approval of complainant, and as the result of the use of its news for the very purpose for which it is distributed, a portion of complainant's members communicate it to the general public by posting it upon bulletin boards so that all may read, or by issuing it to newspapers and distributing it indiscriminately, complainant no longer has the right to control the use to be made of it; that when it thus reaches the light of day it becomes the common possession of all to whom it is accessible; and that any purchaser of a newspaper has the right to communicate the intelligence which it contains to anybody and for any purpose, even for the purpose of selling it for profit to newspapers published for profit in competition with complainant's members. The fault in the reasoning lies in applying as a test the right of the complainant as against the public, instead of considering the rights of complainant and defendant, competitors in business, as between themselves. The right of the purchaser of a single newspaper to spread knowledge of its contents gratuitously, for any legitimate purpose not unreasonably interfering with complainant's right to make merchandise of it, may be admitted; but to transmit that news for commercial use, in competition with complainantwhich is what defendant has done and seeks to justify-is a very different matter. In doing this defendant, by its very act, admits that it is taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and that defendant in appropriating it and selling it as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant's members is appropriating to itself the harvest of those who have sown. Stripped of all disguises, the process amounts to an unauthorized interference with the normal operation of complainant's legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not; with special advantage to defendant in the competition because of the fact that it is not burdened with any part of the expense of gathering the news. The transaction speaks for itself and a court of equity ought not to hesitate long in characterizing it as unfair competition in business. * * * The contention that the news is abandoned to the public for all purposes when published in the first newspaper is untenable. Abandonment is a question of intent, and the entire organization of the Associated Press negatives such a purpose. * * * Publication by each 121

member must be deemed not by any means an abandonment of the news to the world for any and all purposes, but a publication for limited purposes; for the benefit of the readers of the bulletin or the newspaper as such; not for the purpose of making merchandise of it as news, with the result of depriving complainant's other members of their reasonable opportunity to obtain just returns for their expenditures. * * * It is said that the elements of unfair competition are lacking because there is no attempt by defendant to palm off its goods as those of the complainant, characteristic of the most familiar, if not the most typical, cases of unfair competition. * * * But we cannot concede that the right to equitable relief is confined to that class of cases.' [FN12] FN12. See, also, Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 25 S.Ct. 637, 49 L.Ed. 1031; Kiernan v. Manhattan Quotation Telegraph Co., 50 How.Prac.(N.Y.) 194; Uproar Co. v. National Broadcasting Co. (D.C.) 8 F.Supp. 358; National Telegraph News Co. v. Western Union Telegraph Co. (C.C.A.) 119 F. 294, 60 L.R.A. 805; McDearmott Commission Co. v. Board of Trade (C.C.A.) 146 F. 961, 7 L.R.A.(N.S.) 889, 8 Ann.Cas. 759. It appears from the Associated Press Case that while, generally speaking the doctrine of unfair competition rests upon the practice of fraud or deception, the presence of such elements is not an indispensable condition for equitable relief, but, under certain circumstances, equity will protect an unfair appropriation of the product of another's labor or talent. [FN13] In the present case, while defendant did not obtain the property of plaintiff in a fraudulent or surreptitious manner, it did appropriate and utilize for its own profit the musical genius and artistry of plaintiff's orchestra in commercial competition with the orchestra itself. In line with the theory of the Associated Press Case, the publication of the orchestra's renditions was a dedication of them only to purchasers for use of the records on phonographs, and not to competitive interests to profit therefrom at plaintiff's expense. Indeed, in the Associated Press Case the intent against an unqualified abandonment had to be inferred from the circumstances, whereas here it was expressed on the records themselves, and defendant's use of them was a violation of the explicit notice to that effect. FN13. The Associated Press Case was analyzed and distinguished in Cheney Bros. v. Doris Silk Corp. (C.C.A.) 35 F.(2d) 279 (a case referred to by the Supreme Court, apparently with approval, in Reichelderfer v. Quinn, 287 U.S. 315, 319, 53 S.Ct. 177, 178, 77 L.Ed. 331, 83 A.L.R. 1429), in which an injunction was sought by silk manufacturers against a competitor who copied their patterns. In that case, however, design patents could possibly have been obtained by plaintiffs to protect their rights, and, if so, there was no need for a court of equity to grant relief. Moreover, it was questionable whether there was sufficient originality in the designs to vest any property rights in plaintiffs. 122

In Fonotipia, Ltd., v. Bradley (C.C.) 171 F. 951, an injunction was granted to manufacturers of musical records against the manufacture and sale of duplicates made by taking a matrix from one of plaintiff's records and making copies therefrom. As the duplicates were made prior to the present Copyright Law of 1909, relief could not be obtained under the Copyright Act (17 U.S.C.A. 1 et seq.). It was held, aside from any question of deception or fraud, that plaintiffs were entitled to restrain the sale of such copies as a wrongful appropriation of their property rights, although the original records had been sold indiscriminately to the public for years and the copies were clearly marked as such. The court cited the ticket-scalper and trading stamp cases, and said (171 F. 951, at pages 961, 962): Equity has granted relief in certain typical lines of cases where the doctrine of unfair competition seems to have been the guide to the decision, but where the basis upon which the relief was granted was the unfair taking of the complainant's property, rather than the deception of the purchaser, or the imitation of a patented or copyrighted article, or a registered trademark or trade-name. * * * The jurisdiction of a court of equity has always been invoked to prevent the continuance of acts of injury to property and to personal rights generally, where the law had not provided a specific legal remedy, and it would seem that the appropriation of what has come to be recognized as property rights or incorporeal interests in material objects, out of which pecuniary profits can fairly be secured, may properly, in certain kinds of cases, be protected by legislation; but such intangible or abstract property rights would seem to have claims upon the protection of equity, where the ground for legislation is uncertain or difficult of determination, and where the principles of equity plainly apply. That plaintiff's orchestra and defendant are in competition admits of but little doubt. They both furnish entertainment to the public over the radio. The orchestra obtains its remuneration from contracts with advertisers who pay it for the music rendered as supplementary to their advertising. Defendant's revenue also is derived from advertisers, and presumably it can exact a greater compensation from them by being able to furnish mechanized music of an attractive quality at nominal cost-partly because this makes it unnecessary for the advertisers to pay for live talent, and partly because by thus entertaining the radio public a more receptive field is created for the advertising. Thus defendant can in effect sell to its advertising customers and to the public, at practically no expense to itself, the identical musical renditions of plaintiff's orchestra. That such competition is extremely harmful to plaintiff and his orchestra is obvious. It probably must become increasingly difficult for them to demand and obtain $13,500 for a single performance over the radio if innumerable reiterations of their renditions can be furnished at a cost of 75 cents. There was testimony to the effect, and the learned chancellor found, that the constant broadcasting of the records [FN14] diminished the commercial value of the orchestra's performances. Moreover, the records being, as it happened in this case, old ones, the public were led to judge the ability of the orchestra by work rendered at a time when it probably had not attained its present high degree of excellence. In Associated Press v. KVOS, Inc. (C.C.A.) 80 F. (2d) 575, [FN15] an injunction was granted to a news agency to restrain a radio station from broadcasting news reports taken from the 123

newspapers published by plaintiff's members, it being held that the radio station and the newspapers alike disseminated advertising together with news which helped to make it attractive, and therefore they were just as much in commercial competition in the field of publishing news as in that of the sale of advertising. Even though no direct charge is made by a broadcasting station for the entertainment which it furnishes, its broadcast performances are nevertheless for profit in the eyes of the law, as they are designed to aid in the obtaining of advertising business. Witmark v. Bamberger (D.C.) 291 F. 776; Remick v. American Automobile Accessories Co. (C.C.A.) 5 F.(2d) 411, 40 A.L.R. 1511; Irving Berlin, Inc. v. Daigle (C.C.A.) 31 F.(2d) 832; Herbert v. Shanley Co., 242 U.S. 591, 37 S.Ct. 232, 61 L.Ed. 511; Associated Press v. KVOS, Inc. (C.C.A.) 80 F.(2d) 575. FN14. It was testified that between 350 and 450 broadcasting stations in the United States use records almost exclusively instead of live talent, both for their commercial and their sustaining programs. FN15. Reversed in the Supreme Court, 299 U.S. 269, 57 S.Ct. 197, 81 L.Ed. 183, for want of jurisdiction, it not having been established that the amount in controversy exceeded $3,000, the case being in the federal court because of diversity of citizenship of the litigants. On the facts in the present case, therefore, and having in mind the many unique factors which enter into its consideration, we are of opinion that on the ground of unfair competition, apart from any other theory of equitable relief, plaintiff is entitled to the injunction which the court below awarded. Defendant contends that a charge of unfair competition was not pleaded in the bill; the facts upon which it rests, however, were sufficiently alleged, and it was not necessary for plaintiff to employ the precise term to designate the legal effect of the acts complained of. An abundance of testimony was presented by him to establish this feature of the case. Finally, defendant maintains that, by becoming a member of the National Association of Performing Artists, plaintiff automatically assigned to that association whatever rights he may have had in the records made by his orchestra. Even if that were so, however, it would be of no available concern to defendant. Purdy v. Massey, 306 Pa. 288, 159 A. 545. The decree of the court below is affirmed; costs to be paid by defendant.

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2.

RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940)

L. HAND, Circuit Judge. This case comes up upon appeals by the plaintiff, RCA Manufacturing Company, Inc., and the defendants, Paul Whiteman and W.B.O. Broadcasting Corporation. Before the action was brought Whiteman had filed a complaint against W.B.O. Broadcasting Corporation and Elin, Inc., to restrain the broadcasting of phonograph records of musical performances by Whiteman's orchestra. By leave of court RCA Manufacturing Company, Inc., then filed the complaint at bar, as ancillary to Whiteman's action, asking the same relief against W.B.O. Broadcasting Corporation and Elin, Inc., as Whiteman had asked in his action, and in addition asking that Whiteman be adjudged to have no interest in the records of his performances, because of contracts between him and itself. Whiteman thereupon discontinued his action, leaving only the ancillary action in which the judgment on appeal was entered. The dispute is as to whether W.B.O. Broadcasting Corporation, as the purchaser of phonographic records prepared by RCA Manufacturing Company, Inc., of Whiteman's orchestral performances, may broadcast them by radio. Whiteman's performances took place in studios of RCA Manufacturing Company, Inc., which arranged for their reproduction upon ordinary phonographic disc records, and which, with the consent of Whiteman, sold the records to the public at large. Of the nine records here in question five were sold between November, 1932, and August 15, 1937, during which period every record bore the legend: Not Licensed for Radio Broadcast. (Apparently the four earlier records did not advise the purchaser of any such limitation.) After August 15, 1937, this notice was changed to read as follows: Licensed by Mfr. under U.S. Pats. 1625705, 1637544, RE. 16588 (& other Pats. Pending) Only For NonCommercial Use on Phonographs in Homes. Mfr. & Original Purchaser Have Agreed This Record Shall Not Be Resold Or Used For Any Other Purpose. See Detailed Notice on Envelope. These later records were inclosed in envelopes which even more clearly gave notice of the same limitations. W.B.O. Broadcasting Corporation every week bought from a New York company, Bruno-New York, Inc., such records as it needed; it used them thereafter to broadcast over its radio system. Bruno-New York, Inc., had bought the records in question under a contract with RCA Manufacturing Company, Inc. in which they agreed after its date (August 9, 1937) to resell only for non-commercial use on phonographs in homes as per the notice appearing on the record labels and envelopes. It may be assumed that W.B.O. Broadcasting Corporation is charged with notice of the legends on the records, and with the contract of Bruno-New York, Inc., and that it broadcasts them on its radio system in disregard of both. The questions raised below were whether Whiteman and/or RCA Manufacturing Company, Inc., had any musical property at common-law in the records which radio broadcasting invaded; whether Whiteman had passed any rights which he may have had to RCA Manufacturing Company, Inc., under certain agreements, not necessary to be set out; and whether, if either Whiteman or RCA Manufacturing Company, Inc., had any 125

such common-law property, the legends and notice enabled them, or either of them, to limit the uses which the buyer might make of the records. The judge held that all of Whiteman's rights had passed to RCA Manufacturing Company, Inc., which for that reason was entitled to enjoin the broadcasting of these records; and that Whiteman was also entitled to an injunction against W.B.O. Broadcasting Corporation because it was unfair competition to broadcast his performances without his consent. All parties appealed except Elin, Inc. The RCA Manufacturing Company, Inc., appealed because the judge did not recognize its common-law artistic property, arising out of the skill and art necessary to obtain good recording, and also because of the affirmative relief granted to Whiteman. Whiteman appealed because of the holding that he had lost all his rights to RCA Manufacturing Company, Inc., under its contracts with him. W.B.O. Broadcasting Corporation appealed because any relief was granted against it. It is only in comparatively recent times that a virtuoso, conductor, actor, lecturer, or preacher could have any interest in the reproduction of his performance. Until the phonographic record made possible the preservation and reproduction of sound, all audible renditions were of necessity fugitive and transitory; once uttered they died; the nearest approach to their reproduction was mimicry. Of late, however, the power to reproduce the exact quality and sequence of sounds has become possible, and the right to do so, exceedingly valuable; people easily distinguish, or think they distinguish, the rendition of the same score or the same text by their favorites, and they will pay large sums to hear them. Hence this action. It was settled at least a century ago that the monopoly of the right to reproduce the compositions of any author-his common-law property in them- was not limited to words; pictures were included. Turner v. Robinson, 10 Ir.Ch. 121; S.C. 10 Ir.Ch. 522; Prince Albert v. Strange, 1 McN.& G. 25. This right has at times been stated as though it extended to all productions demanding intellectual effort; and for the purposes of this case we shall assume that it covers the performances of an orchestra conductor, and- what is far more doubtful- the skill and art by which a phonographic record maker makes possible the proper recording of those performances upon a disc. It would follow from this that, if a conductor played over the radio, and if his performance was not an abandonment of his rights, it would be unlawful without his consent to record it as it was received from a receiving set and to use the record. Arguendo, we shall also assume that such a performance would not be an abandonment, just as performance of a play, or the delivery of a lecture is not; that is, that it does not publish the work and dedicate it to the public. Ferris v. Frohman, 223 U.S. 424, 435, 32 S.Ct. 263, 56 L.Ed. 492; Nutt v. National Institute, 2 Cir., 31 F.2d 236; McCarty & Fischer v. White, D.C., 259 F. 364; Uproar Co. v. National Broadcasting Co., D.C., 8 F.Supp. 358. Nevertheless, even if Whiteman's common-law property in his performances survived the sale of the records on which they were inscribed, it would be very difficult to see how he, or a fortiori the maker of the records, could impose valid restrictions upon their resale. Concededly that could not be done (regardless of the present statutory prohibition) if the restriction went to the resale price. Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086. It would also have been impossible if the restriction forbad the buyer to use the article except with other articles bought of the 126

record maker. Motion Picture Patents Co. v. Universal Film Co., 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871, L.R.A.1917E, 1187, Ann.Cas. 1918A, 959. We do not, however, have that question to decide, for we think that the common-law property in these performances ended with the sale of the records and that the restriction did not save it; and that if it did, the records themselves could not be clogged with a servitude. Copyright in any form, whether statutory or at common-law, is a monopoly; it consists only in the power to prevent others from reproducing the copyrighted work. W.B.O. Broadcasting Corporation has never invaded any such right of Whiteman; they have never copied his performances at all; they have merely used those copies which he and the RCA Manufacturing Company, Inc.; made and distributed. The putatively protected performances were themselves intended for that purpose and for that alone; the situation was precisely the same as though Whiteman and RCA Manufacturing Company, Inc., had combined to produce an original musical score and inscribe it upon records. The records at bar embodied Whiteman's common-law property- his contribution as a conductor- in precisely the same way that the record of such a score would embody his composition. Hence the question is no different from whether he might disseminate a musical score to the public at large, but impose a limitation upon it that buyers should not use it to broadcast for profit. Whatever might be said of that- if the sale were not a publication- it will hardly be argued that if it was a publication in the sense that that destroys the common-law property, the restriction upon the use of the record would be valid notwithstanding. Restrictions upon the uses of chattels once absolutely sold are at least prima facie invalid; they must be justified for some exceptional reason, normally they are repugnant to the transfer of title. If the common-law property in the rendition be gone, then anyone may copy it who chances to hear it, and may use it as he pleases. It would be the height of unreasonableness to forbid any uses to the owner of the record which were open to anyone who might choose to copy the rendition from the record. To revert to the illustration of a musical score, it would be absurd to forbid the broadcast for profit of its record, if any hearer might copy it and broadcast the copy. Thus, even if Whiteman and RCA Manufacturing Company, Inc., have a common-law property which performance does not end, it is immaterial, unless the right to copy the rendition from the records was preserved through the notice of the restriction. As applied to books, where the problem is precisely the same, there is not very much law as to whether such restrictions prevent complete dedication, but the judges who have passed upon the question have declared, at times with much certainty, that they are nugatory. In 1898 the Court of Appeals of New York flatly so decided in Jewelers Mercantile Agency v. Jewelers Publishing Co., 155 N.Y. 241, 49 N.E. 872, 41 L.R.A. 846, 63 Am.St.Rep. 666, and that is the leading case. Judge Putnam had held the same in 1896 (Ladd v. Oxnard, C.C., 75 F. 703, 730) and he was followed by Judge Townsend (Larrowe-Loisette v. O'Loughlin, C.C., 88 F. 896), Judge Lacombe (Wagner v. Conried, C.C., 125 F. 798) and Judge Ward (Savage v. Hoffman, C.C., 159 F. 584). In his dissenting opinion in International News Service v. Associated Press, 248 U.S. 215, 256, 39 S.Ct. 68, 63 L.Ed. 211, 2 A.L.R. 293, Mr. Justice Brandeis spoke of the law as well127

settled to that effect. See also the reasoning of the court in Chamber of Commerce v. Wells, 100 Minn. 205, 111 N.W. 157. It is quite true that if publication were merely a question of intent, these decisions are wrong, for the intent is obvious not to dedicate the whole right. The problem is not so simple; in dealing with a monopoly the law imposes its own limits. Certainly when the common-law property is in a work which the Copyright Act, 17 U.S.C.A. 1 et seq., covers, there can be no doubt; Congress has created the monopoly in exchange for a dedication, and when the monopoly expires the dedication must be complete. If the records were registrable under the act, the restriction would therefore certainly not limit the dedication. The fact that they are not within the act should make no difference. It is indeed argued that by virtue of Donaldson v. Becket, 4 Burr. 2408, there is a perpetual common-law copyright in works not copyrightable under the act; we have answered that argument in Fashion Originators Guild v. Federal Trade Commission, 2 Cir., 114 F.2d 80, and need not repeat what we said. That being true, we see no reason why the same acts that unconditionally dedicate the common-law copyright in works copyrightable under the act, should not do the same in the case of works not copyrightable. Otherwise it would be possible, at least pro tanto, to have the advantage of dissemination of the work at large, and to retain a perpetual though partial, monopoly in it. That is contrary to the whole policy of the Copyright Act and of the Constitution. Any relief which justice demands must be found in extending statutory copyright to such works, not in recognizing perpetual monopolies, however limited their scope. It is true that the law is otherwise in Pennsylvania, whose Supreme Court in 1937 decided that such a legend as the records at bar bore, fixed a servitude upon the discs in the hands of any buyer. Waring v. WDAS Broadcasting Company, 327 Pa. 433, 194 A. 631. We have of course given the most respectful consideration to the conclusions of that great court, but with much regret we find ourselves unconvinced for the reasons we have tried to state. However, since that is the law of Pennsylvania and since the broadcasting will reach receiving sets in that state, it will constitute a tort committed there; and if an injunction could be confined to those sets alone, it would be proper. It cannot; for even if it be mechanically possible to prevent any broadcasting through the angle which the state of Pennsylvania subtends at the transmission station, that would shut out points both in front of, and beyond, Pennsylvania. We must therefore choose between denying any injunction whatever- since in our judgment the act is unlawful only in Pennsylvania- or enjoining W.B.O. Broadcasting Corporation from broadcasting throughout the Union and in Canada in order to prevent a tort in Pennsylvania alone. This would be an obvious misuse of the writ which goes only in aid of justice. Whiteman and the plaintiff also rest their case upon the theory of unfair competition, depending for that upon International News Service v. Associated Press, supra, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211, 2 A.L.R. 293. That much discussed decision really held no more than that a western newspaper might not take advantage of the fact that it was published some hours later than papers in the east, to copy the news which the plaintiff had collected at its own expense. In spite of some general language it must be confined to that situation (Cheney Bros. v. Doris Silk Corp., 2 Cir., 35 F.2d 279, 281); certainly it 128

cannot be used as a cover to prevent competitors from ever appropriating the results of the industry, skill, and expense of others. Property is a historical concept; one may bestow much labor and ingenuity which inures only to the public benefit; ideas, for instance, though upon them all civilization is built, may never be owned. The law does not protect them at all, but only their expression; and how far that protection shall go is a question of more or less; an author has no natural right even so far, and is not free to make his own terms with the public. In the case at bar if Whiteman and RCA Manufacturing Company, Inc., cannot bring themselves within the law of common-law copyright, there is nothing to justify a priori any continuance of their control over the activities of the public to which they have seen fit to dedicate the larger part of their contribution. We are adjured that courts must adjust themselves to new conditions, and that in the case at bar justice clearly points the way to some relief. We cannot agree; no doubt we should be jealous to execute all reasonable implications of established doctrines; but we should be equally jealous not to undertake the composition of substantial conflicts of interests, between which neither the common-law, nor the statute, has given any clue to its preference. We cannot know how Congress would solve this issue; we can guess- and our guess is that it would refuse relief as we are refusing it- but if our guess were the opposite, we should have no right to enforce it. If the talents of conductors of orchestras are denied that compensation which is necessary to evoke their efforts because they get too little for phonographic records, we have no means of knowing it, or any right to assume it; and it is idle to invoke the deus ex machina of a progress which is probably spurious, and would not be for us to realize, if it were genuine. . . . [] It follows that the complaint must be dismissed, and for reasons which make it unnecessary to determine how far Whiteman's contracts with RCA Manufacturing Company, Inc., preserved any common-law copyrights he might have had, if they had survived the sale of the records. Judgment reversed; complaint dismissed; costs to W.B.O. Broadcasting Corporation. [In December, 1940, the U.S. Supreme Court denied a petition for a writ of certiorari in the above case, 61 S.Ct. 393, effectively upholding the Second Circuits conclusion that property rights in a sound recording ended with the sale of the record.]

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3. Duplication Rights: Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955) Before L. HAND and MEDINA, Circuit Judges, and DIMOCK, District Judge. DIMOCK, District Judge. Plaintiff obtained below an injunction against manufacture and distribution of phonograph records by defendant. The phonograph records bear recordings of performances by highly gifted artists of certain musical compositions. Since each party by stipulation disclaims ownership in any of the compositions by virtue of copyright, we treat them as in the public domain for the purposes of the case. Plaintiff derives its title, such as it is, from Telefunkenplatte, G.m.b.H., hereinafter called Telefunken, in Berlin, Germany, which purported to sell to plaintiff matrix records and to grant to plaintiff the right to manufacture and distribute copy records in the United States. Defendant derives its title, such as it is, from an alien property administration in Czechoslovakia which purported to grant to defendant's predecessor in title the right to use identical matrix records and the right to manufacture therefrom, and distribute, copy records in the United States. Telefunken was the original owner of these matrix records which came from Czechoslovakia and had furnished them to an organization in that country giving it the right to reproduce and sell copies in a limited territory which did not include the United States. The records have not been copyrighted. If they are subject to copyright we are clear that the rights of the parties to make and sell copies are to be determined under federal law. We must first determine, therefore, whether or not phonograph records of compositions in the public domain recorded by musical artists are susceptible of copyright. There can be no doubt that, under the Constitution, Congress could give to one who performs a public domain musical composition the exclusive right to make and vend phonograph records of that rendition. The question is whether Congress has done so. It is plain that, prior to the 1909 amendment of the Copyright Act, Congress had not accorded to one who performed such a composition that exclusive right. The Supreme Court held in White-Smith Music Publishing Company v. Apollo Company, 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655, that the holder of the copyright of a musical composition did not have the exclusive right to make and vend music rolls for mechanical pianos. It was determined that the music rolls were not copies' of the musical composition within the copyright owner's exclusive right to make copies' of the composition. From this it follows that it was not the intention of Congress that a virtuoso's rendition of a musical composition in the public domain could be copyrighted under the unamended Act because it provided that No person shall be entitled to a copyright unless he shall * * * 130

not later than the day of the publication * * * deliver at the office of the Librarian of Congress * * * two copies' of the work of which the copyright was sought. R.S. 4956, as amended by Act March 3, 1891, c. 565, 3, 26 Stat. 1107, 17 U.S.C.A. 13 note. Mechanical reproductions of such a rendition are the only possible means of duplication. The virtuoso himself could not give two performances precisely alike, yet copies' were necessary to secure copyright and mechanical reproductions were not copies'. To meet the holding that the owner of the copyright of a musical composition could not enjoin the making and vending of music rolls and records, Congress amended the Act in 1909, Act March 4, 1909, c. 320, 35 Stat. 1075. To change that result it could have declared that a mechanical reproduction of a musical composition should constitute a copy thereof within the meaning of the Act. Under such an amendment a virtuoso might copyright his rendition by depositing two records with the Librarian of Congress under section 4956 above quoted and thereafter be entitled to enjoin the reproduction of copies of those records. Congress, however, did not adopt that plan. Instead it enacted in section 1(e), 17 U.S.C. 1(e), that any person complying with the provisions of the Act should have the exclusive right to perform the copyrighted work publicly for profit if it be a musical composition; and * * * to make * * * any form of record (of it) in which the thought of an author may be recorded and from which it may be read or reproduced. Thus Congress met the narrow problem presented by the Apollo case. From thenceforward one who had copyrighted a musical composition by publishing written copies thereof with the copyright notice [FN1] had the exclusive right to make records thereof. No attempt was made to meet a case like that at bar where, in the nature of things, the performance of the artist could be copyrighted only in the form of a record. Nothing in the Act indicates an intention that the record shall be the copyrighted work Section 1(e) from which we have just quoted goes on to refer to the provisions of the Act so far as they secure, not copyright of the parts of instruments serving to reproduce mechanically the musical work, but copyright controlling such parts. It further refers to the use of the copyrighted work upon the parts of instruments. FN1. The new method of securing copyright prescribed by section 9 of the amended Act, 17 U.S.C. 10. Congress provided no means for copyrighting a virtuoso's rendition of a musical composition in the public domain. Under section 9 of the Act, 17 U.S.C. 10, copyright is secured by publication with the notice of copyright. By section 19, 17 U.S.C. 20, it is provided that the notice shall be applied in the case of a musical work either upon its title page or the first page of music. The old plan of deposit of copies was not abandoned, however, and now copies' must be deposited with the Register of Copyrights under section 12, 17 U.S.C. 13, and, under section 13, 17 U.S.C. 14, the Register may, upon failure to deposit copies, bring proceedings which will result in voiding the copyright.

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That the actual intent of Congress coincided with the intent as expressed in these words of the statute as amended in 1909 appears from the Report of the Committee on Patents which accompanied the House of Representatives bill that embodied the amendment. That Report, H.R.Rep., No. 2222, 60th Cong., 2d Sess. 10, stated, immediately following the discussion of section 1(e): It is not the intention of the committee to extend the right of copyright to the mechanical reproductions themselves, but only to give the composer or copyright proprietor the control, in accordance with the provisions of the bill, of the manufacture and use of such devices. In some quarters the possibility has been suggested that section 4 of the Copyright Act added in 1909, 35 Stat. 1076, 17 U.S.C. 4, providing the works for which copyright may be secured under this Act shall include all the writings of an author, constituted an exhaustion of the constitutional power of Congress to extend copyright protection and consequently clothed phonograph records with copyright protection. Hale, 13 C.J. 1035; Weil, Copyright Law (1917), 214; Howell, The Copyright Law (3rd ed. 1952), 8. Not only does the language of the rest of the amendment negate the intention to extend copyright protection to phonograph records, as above indicated, but again the above quotation from the Report of the Committee on Patents gives the answer when it states, it is not the intention of the Committee to extend the right of copyright to the mechanical reproductions themselves. This express disclaimer of intention to extend the right of copyright to the mechanical reproductions themselves makes it impossible to misunderstand a further statement in the Report of the Committee on Patents, p. 10: Section 4 is declaratory of existing law. It was suggested that the word works' should be substituted for the word writings', in view of the broad construction given by the courts to the word writings', but it was thought better to use the word writings' which is the word used in the Constitution. It is not intended by the use of this word to change in any way the construction which the courts have given it. From the foregoing it appears, first, that Congress, before the 1909 amendment, intended that one who performed a public-domain musical composition should not be able to obtain copyright protection for a phonographic record thereof, and, second, that nothing in the 1909 amendment indicated any change in that intention. That conclusion is supported by the opinion in RCA Mfg. Co. v. Whiteman, 2 Cir., 114 F.2d 86, 89, where this court stated arguendo that phonograph records are not registerable under the Act. Judge Leibell in Jerome v. Twentieth Century Fox-Film Corp., D.C.S.D.N.Y., 67 F.Supp. 736, 742, affirmed, 2 Cir., 165 F.2d 784, said that a victrola record cannot be copyrighted, citing Judge Hazel's opinion in Aeolian Co. v. Royal Music Roll Co., D.C.W.D.N.Y., 196 F. 926, 927, While, under the provisions of the 132

copyright law, such music rolls or records are not strictly matters of copyright, Congress in passing the enactment evidently intended to protect copyright proprietors in their right to their productions, and to give them an exclusive right to print, publish, and vend the same. In Waring v. WDAS Broadcasting Station, Inc., 327 Pa. 433, 194 A. 631, 633, it was admitted on all hands that the right claimed by an orchestra proprietor to prevent the sale of records of his performances was not the subject of protection under existing copyright laws. Since the Copyright Act does not deal with the protection of phonograph records of the performances of public-domain compositions by virtuosos, we have no basis for applying federal law. We must apply the law which would have been applied in the courts of the state embracing the district of the court below. Erie R. Co. v. Tompking, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. To decide the case before us we must resolve the competing claims of a plaintiff which derives its rights from a grant from Telefunken in Germany and a defendant which derives its rights from a grant from an alien property administration in Czechoslovakia. We must determine what law the New York State courts would apply to ascertain the extent of the respective rights of plaintiff and defendant. We find a complete dearth of authority on the question in New York and consequently must make the decision upon principle. We believe that where the extent of literary property within a given jurisdiction is in question and that extent depends upon acts which have taken place outside of that jurisdiction, the determination should be made according to the law of that jurisdiction as though the acts had taken place within its borders. Literary property is in essence a right to exclude, to a greater or lesser extent, others from making some or all use of the expressed thoughts of an author. The number of the conceivable grades of the extent of the exclusion and the number of the conceivable kinds of uses of the thoughts of authors are almost limitless. If we leave those questions of the scope of the right to any law other than that of the place where the right is sought to be exercised we may be faced with dealing with property interests unknown to our law. The English rule seems to be that such questions are determined according to the law of the place where the rights are sought to be exercised. In the leading case of Celementi v. Walker, 2 Barnewall & Cresswell 861, it was ruled that what would have been a dedication in England had the effect of a dedication even though it took place abroad. Then too the rule that we are adopting is in harmony with the settled law that a copyright has no extra-territorial effect. See American Code Co. v. Bensinger, 2 Cir., 282 F. 829, 833. Until we have a uniform international law of literary property, it will be much more convenient to determine the effect of each act by the law of the place where the right of property is sought to be exercised. We shall therefore determine the respective rights of plaintiff and defendant as though they had been created by the law of the State of New York. . . . [] The fact that the New York courts, in the case of the two operas which had already been the subject of records sold by Columbia, made no exception and prohibited the sale of recordings of them along 133

with the rest indicates that the New York courts' view was that Columbia's sale of the records of the two operas did not put in the public domain the right to copy them and sell the copies. . . . [] Affirmed. L. HAND, Circuit Judge (dissenting). I also believe that the performance or rendition of a musical composition is a Writing under Article I, 8, Cl. 8 of the Constitution separate from, and additional to, the composition itself. It follows that Congress could grant the performer a copyright upon it, provided it was embodied in a physical form capable of being copied. The propriety of this appears, when we reflect that a musical score in ordinary notation does not determine the entire performance, certainly not when it is sung or played on a stringed or wind instrument. Musical notes are composed of a fundamental note with harmonics and overtones which do not appear on the score. There may indeed be instruments- e.g. percussive- which do not allow any latitude, though I doubt even that; but in the vast number of renditions, the performer has a wide choice, depending upon his gifts, and this makes his rendition pro tanto quite as original a composition as an arrangement or adaptation of the score itself, which 1(b) makes copyrightable. Now that it has become possible to capture these contributions of the individual performer upon a physical object that can be made to reproduce them, there should be no doubt that this is within the Copyright Clause of the Constitution. That, however, does not answer the question whether Congress has protected this common-law property by copyright; and I am also disposed to believe that it has not done so. Section 4, if read literally, would leave no doubt that the Act covers all that can constitutionally be copyrighted; and it has been so assumed on occasions where the statute did not elsewhere disclose an opposite intent. [FN1] But we in RCA Mfg. Co. v. Whiteman, 2 Cir., 114 F.2d 86, 89, and the Supreme Court of Pennsylvania in Waring v. WDAS Broadcasting Station, Inc., 327 Pa. 433, 194 A. 631, said that records such as those at bar could not be copyrighted; although it is true that in neither case was that strictly necessary to the actual decision. The House report on the Act of 1909 does not, however, seem to me to throw any light upon the issue, for, in the passage relied upon, the report was concerned only with 1(e), which was intended to overrule White-Smith Music Publishing Company v. Appollo Company, 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655. That decision had held that under the existing statute mechanical reproductions of the score of a musical composition were not infringements of the composer's copyright; but those reproductions were not of any contribution of a performer; and therefore the only effect of 1(e) was to give a limited protection to the existing copyright of the score from this kind of infringement. I cannot find in the language of the report anything even to intimate that the record of a performer of a musical composition should not be copyrighted; for, if copyrighted, such records would be themselves the works, not infringements of another work: i.e. the score. The second quotation from the report- i.e. that touching 4 itself,- was addressed only to the choice of the word Writings, as against works, and was limited to leaving unchanged the decisions of court. Since I cannot see anything in the report that bears on the question of the copyrightability of the 134

records at bar, I need not consider how far I should deem it controlling in interpreting the language of 4. [FN2] Nor am I impressed, either with the Register's refusal in 1935 to accept an application for copyright of the personal interpretation of Fred Waring; or by the argument that such records could not be marked with the notice required by 10, or deposited for registration as required by 11. FN1. International News Service v. Associated Press, 248 U.S. 215, 234, 39 S.Ct. 68, 63 L.Ed. 211; Deutsch v. Arnold, 2 Cir., 98 F.2d 686; Reiss v. National Quotation Bureau, Inc., D.C.S.D.N.Y., 276 F. 717. FN2. Railroad Commission of State of Wisconsin v. Chicago, B. & Q.R. Co., 257 U.S. 563, 589, 42 S.Ct. 232, 66 L.Ed. 371; United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 83, 53 S.Ct. 42, 77 L.Ed. 175; Gemsco, Inc., v. Walling, 324 U.S. 244, 260, 65 S.Ct. 605, 89 L.Ed. 921; Packard Motor Car Co. v. National Labor Relations Board, 330 U.S. 485, 492, 67 S.Ct. 789, 91 L.Ed. 1040; Ex parte Collett, 337 U.S. 55, 61, 69 S.Ct. 944, 959, 93 L.Ed. 1207. Nevertheless, the considerations put forward by Professor Chafee in his Reflections on Copyright Law,' [FN3] have convinced me that the absolute language of 4 should not be taken to apply to common-law property of the kind here at bar. My reasons for this are that to do so would be too much to ignore the very specific provisions of 1(e) regulating the infringement of musical compositions' by mechanical reproduction. The kind of common-law property now before us is very close aboard the sort of thing that Congress was dealing with in 1(e); and the way that it did deal with it strongly implies that this kind of copyright requires special treatment. More concretely I mean this. Although Congress meant to depart from the existing denial of mechanical infringement of musical compositions, and to adopt in general the view of the concurring opinion of Holmes, J., in White-Smith Music Publishing Company v. Apollo Company, supra, 209 U.S. 1, 28 S.Ct. 319, it did not choose to make mechanical reproductions infringements in the ordinary sense. Obviously, it thought that this kind of invasion of the composer's property demanded only a limited remedy, which it specifically prescribed: two cents for each record. If we were to hold that records made of the renditions of a singer or a virtuoso were copyrightable, this limitation could scarcely be imported into their infringement, which in its absence would therefore carry the same remedies as any other infringement. That, I agree, we should have no right to assume. True, it is a serious matter to impose implied limitations upon the words of a statute that apparently express the deliberate purpose of exercising a constitutional power to its full scope; nevertheless, this appears to me to be an occasion when we are forced to do so, and for that reason I think that the records of Telefunken, though they are Writings' under the Constitution, could not have been copyrighted under the Act. FN3. 45 Columbia Law Review 733-736.

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However, the question at bar is not whether the plaintiff can prevent the plagiarism of its records by the defendant as a copyright infringement; but whether by their public sale it has lost its common-law property in the renditions of the songs. It got from Telefunken all rights that Telefunken had in the matrices and records made in Germany, and I will assume that these included any rights that the singers may have had in the renditions. If the question is to be decided by the law of New York, where the records were sold, again I agree that the decision of the Supreme Court in Metropolitan Opera Ass'n v. WagnerNichols Recorder Corp., 199 Misc. 786, 101 N.Y.S.2d 483, affirmed by the Appellate Division for the First Department in 279 App.Div. 632, 107 N.Y.S.2d 795, is conclusive upon us. In that case the intervening plaintiff, Columbia Records, had a contract with the opera company which allowed it to make recordings of three operas produced by that company and to sell the records so made to the public. The defendant made matrices from broadcasts of the operas by the American Broadcasting Company under another contract with the opera company. The defendant made and sold records from these matrices, which the court enjoined on the theory that the sales were unfair competition. If the records had been copyrightable under the Act, there could be no doubt that publication would have been a dedication of any common-law right. In Fashion Originators Guild v. Federal Trade Commission, 2 Cir., 114 F.2d 80, 83, 84, we held that this was true of common-law property in the designs for women's dresses, which was within the Copyright Clause of the Constitution, although we did not consider whether the designs could be registered or not, because publication' of them was a surrender of all its,' the owner's, common-law property' in them.' It is true that when our order was affirmed by the Supreme Court, 312 U.S. 457, at page 468, 668, 61 S.Ct. 703, at page 708, 85 L.Ed. 949, the opinion contained the following passage: Nor can the unlawful combination be justified upon the argument that systematic copying of dress designs is itself tortious, or should now be declared so by us. In the first place, whether or not given conduct is tortious is a question of state law, under our decision in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. In the second place, even if copying were an acknowledged tort under the law of every state, that situation would not justify petitioners in combining together to regulate and restrain interstate commerce in violation of federal law. This might indeed be read as holding that the state law should decide whether the author had lost his common-law property by publication; but that was not necessary to the decision, and in any event the Court did not have in mind the effect of the Copyright Clause or the Copyright Act. Moreover, although in RCA Mfg. Co. v. Whiteman, supra, 2 Cir., 114 F.2d 86, we decided the same question freed from -the factor of the Anti-Trust Act, the Court had granted certiorari in Fashion Originators Guild v. Federal Trade Commission, 311 U.S. 641, 61 S.Ct. 175, 85 L.Ed. 409, only three weeks before it denied the writ in RCA Mfg. Co. v. Whiteman, supra. Hence I do not think that we should consider Fashion Originators Guild v. Federal Trade Commission, supra, 312 U.S. 457, 668, 61 S.Ct. 703, as a ruling that it is the state law that determines what publication destroys the common-law property in a Writing not copyrightable under the Act. We did not indeed have to say what law governed that question in either Fashion Originators Guild v. Federal Trade Commission, supra, or RCA Mfg. Co. v. Whiteman, supra, for we had no reason to anticipate that the law of New York would take 136

a different view; and, for that matter, the decision in the Metropolitan Opera case itself was made without any notion that a federal question might be involved. If 2 of the Act were the sole basis of all rights that are within the Copyright Clause, there could have been no doubt that publication would be a federal question, for the section is limited to unpublished works. However, it is the successor of R.S. 4967, which was itself the successor of 9 of the Act of February 3, 1831, 4 Stat. 438, and it is settled that that section only granted a remedy cumulative upon the state remedies and is not the basis of the author's common-law property.' [FN4] I therefore recognize the plausibility of the possible argument that, since 2 was not necessary to avoid the judges' answer to the third question in Donaldson v. Becket, 4 Burrows 2408, the courts of New York should be deemed free, subnomine unfair competition, to determine what conduct shall constitute a publication of a work not covered by the Copyright Act. It would then follow that they could grant to an author a perpetual monopoly, although he exploited the work with all the freedom he would have enjoyed, had it been copyrighted. I cannot believe that the failure of Congress to include within the Act all that the Clause covers should give the states so wide a power. To do so would pro tanto defeat the overriding purpose of the Clause, which was to grant only for limited Times' the untrammelled exploitation of an author's Writings. Either he must be content with such circumscribed exploitation as does not constitute publication, or he must eventually dedicate his work to the public. The situation is no different from that of patents, where such bilateral character of the grant is a commonplace. I would hold that the clause has that much effect ex proprio vigore; and that the states are not free to follow their own notions as to when an author's right shall be unlimited both in user and in duration. Such power of course they have as to works' that are not Writings'; but I submit that, once it is settled that a work is in that class, the Clause enforces upon the author the choice I have just mentioned; and, if so, it must follow that it is a federal question whether he has published the work. FN4. Press Publishing Company v. Monroe, 2 Cir., 73 F. 196, 31 L.R.A. 353, appeal dismissed on the ground that no federal question was involved, 164 U.S. 105, 17 S.Ct. 40, 41 L.Ed. 367; Palmer v. De Witt, 47 N.Y. 532. Moreover, there is another reason for this conclusion. Uniformity was one of the principal interests to be gained by devolving upon the Nation the regulation of this subject. During the existence of the Articles of Confederation several of the states had passed copyright laws, largely through the efforts of Noah Webster; and on May 2, 1783, Madison had procured the passage of a resolution through Congress recommending the states to pass such a law. By 1786 all but Vermont had done so, [FN5] although in several states the statute did not protect citizens of states that did not reciprocate; and so the matter stood in 1787. So far as I know, there is nothing to show what took place in the Convention; but, in the 43rd number of the Federalist, Madison made this short comment on the Clause, The States cannot separately make effectual provision for either of these 137

cases' (patents or copyrights), and most of them have anticipated the decision of this point, by laws passed at the instance of Congress. He assumed that it was obvious that the states could not make any such effectual provision, and so it was; for, although a state may prohibit the importation of pirated works' published elsewhere, and even confiscate them, that has again and again proved an ineffective protection; and was indeed a principal cause of international reciprocity by treaty. If, for example in the case at bar, the defendant is forbidden to make and sell these records in New York, that will not prevent it from making and selling them in any other state which may regard the plaintiff's sales as a publication; and it will be practically impossible to prevent their importation into New York. That is exactly the kind of evil at which the clause is directed. I recognize that under the view I take the plaintiff can have only a very limited use of its records, if it hopes to keep its monopoly. That is indeed a harsh limitation, since it cannot copyright them; but I am not satisfied that the result is unjust, when the alternative is a monopoly unlimited both in time and in user. Unhappily we cannot deal with the situation as we should like, because the copyrightability of such works' is a casus omissus from the Act. That was almost certainly owing to the fact that in 1909 the practise of recording the renditions of virtuosi had not sprung up. FN5. Drone on Copyright, pp. 87, 88; Bowker on Copyright, p. 35. Therefore I would reverse the judgment as to all records that the plaintiff has sold in this country and dismiss the complaint. . . . 4. Notes and Questions

Go back to the themes outlined in the notes at the end of the readings for the second class. Do you see similar or new themes emerging from this week's materials? In which of the cases do you see disputes over promotion and substitution? Where and how does the Lockean theory appear? Consider the bundle of rights in music as defined by copyright law and the manner in which various parties in the industry have sought to carve out and enforce those rights; how do those issues come into play in the cases above? Do you see any differences between the ways in which these issues have played out in the context of protection of compositions versus protection of sound recordings? To what do you attribute any such differences? Does it make sense to treat these rights differently? Why or why not?

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IV. Fourth Class: Precursors to Current Music Law -- Increased Protection for Sound Recordings, the 1976 Copyright Act, and Radio Deregulation

A.

Protection of Sound Recordings

1.

Goldstein v. California, 412 U.S. 546 (1973)

Mr. Chief Justice BURGER delivered the opinion of the Court. We granted certiorari to review petitioners' conviction under a California statute making it a criminal offense to pirate recordings produced by others. In 1971, an information was filed by the State of California, charging petitioners in 140 counts with violating s 653h of the California Penal Code. The information charged that, between April 1970 and March 1971, petitioners had copied several musical performances from commercially sold recordings without the permission of the owner of the master record or tape. FN1 Petitioners moved to dismiss the complaint on the grounds that s 653h was in conflict with Art. I, s 8, cl. 8, of the Constitution, FN2 the Copyright Clause, and the federal statutes enacted thereunder. Upon denial of their motion, petitioners entered pleas of nolo contendere to 10 of the 140 counts; the remaining counts were dismissed. On appeal, the Appellate Department of the California Superior Court sustained the validity of the statute. After exhausting other state appellate remedies, petitioners sought review in this Court. FN1. In pertinent part, the California statute provides:(a) Every person is guilty of a misdemeanor who:(1) Knowingly and willfully transfers or causes to be transferred any sounds recorded on a phonograph record, . . . tape, . . . or other article on which sounds are recorded, with intent to sell or cause to be sold, . . . such article on which such sounds are so transferred, without the consent of the owner.(2) . . .(b) As used in this section, person means any individual, partnership, corporation or association; and owner means the person who owns the master phonograph record, . . . master tape, . . . or other device used for reproducing recorded sounds on phonograph records, . . . tapes, . . . or other articles on which sound is recorded, and from which the transferred recorded sounds are directly or indirectly derived.' Specifically, each count of the information alleged that, in regard to a particular recording, petitioners had, at and in the City of Los Angeles, in the County of Los Angeles, State of California . . . wilfully, unlawfully and knowingly transferred and caused to be transferred sounds recorded on a tape with the

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intent to sell and cause to be sold, such tape on which such sounds (were) so transferred . . .. FN2. Article I, s 8, cl. 8, provides that Congress shall have the powerTo promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries . . .. I Petitioners were engaged in what has commonly been called record piracy or tape piracy-the unauthorized duplication of recordings of performances by major musical artists.[FN3 omitted] Petitioners would purchase from a retail distributor a single tape or phonograph recording of the popular performances they wished to duplicate. The original recordings were produced and marketed by recording companies with which petitioners had no contractual relationship. At petitioners' plant, the recording was reproduced on blank tapes, which could in turn be used to replay the music on a tape player. The tape was then wound on a cartridge. A label was attached, stating the title of the recorded performance-the same title as had appeared on the original recording, and the name of the performing artists.FN4 After final packaging, the tapes were distributed to retail outlets for sale to the public, in competition with those petitioners had copied. FN4. An additional label was attached to each cartridge by petitioners, stating that no relationship existed between petitioners and the producer of the original recording or the individuals whose performances had been recorded. Consequently, no claim is made that petitioners misrepresented the source of the original recordings or the manufacturer of the tapes. Petitioners made no payments to the artists whose performances they reproduced and sold, or to the various trust funds established for their benefit; no payments were made to the producer, technicians, or other staff personnel responsible for producing the original recording and paying the large expenses incurred in production.FN5 No payments were made for the use of the artists' names or the album title. FN5. The costs of producing a single original longplaying record of a musical performance may exceed $50,000 or $100,000. Tape Industries Assn. of America v. Younger, supra, at 344 (1970); Hearings on S. 646 and H.R. 6927 before Subcommittee No. 3 of the House Committee on the Judiciary, 92d Cong., 1st Sess., 27-28 (1971). For the performance recorded on this record, petitioners would pay only the retail cost of a single longplaying record or a single tape. The challenged California statute forbids petitioners to transfer any performance fixed on a tape or record onto other records or tapes with the intention of selling the duplicates, 140

unless they have first received permission from those who, under state law, are the owners of the master recording. Although the protection afforded to each master recording is substantial, lasting for an unlimited time, the scope of the proscribed activities is narrow. No limitation is placed on the use of the music, lyrics, or arrangement employed in making the master recording. Petitioners are not precluded from hiring their own musicians and artists and recording an exact imitation of the performance embodied on the master recording. Petitioners are even free to hire the same artists who made the initial recording in order to duplicate the performance. In essence, the statute thus provides copyright protection solely for the specific expressions which compose the master record or tape. Petitioners' attack on the constitutionality of s 653h has many facets. First, they contend that the statute establishes a state copyright of unlimited duration, and thus conflicts with Art. I, s 8, cl. 8, of the Constitution. Second, petitioners claim that the state statute interferes with the implementation of federal policies inherent in the federal copyright statutes. 17 U.S.C. s 1 et seq. According to petitioners, it was the intention of Congress, as interpreted by this Court in Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964), and Compco Corp. v. Day-Brite Lighting, 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964), to establish a uniform law throughout the United States to protect original writings. As part of the federal scheme, it is urged that Congress intended to allow individuals to copy any work which was not protected by a federal copyright. Since s 653h effectively prohibits the copying of works which are not entitled to federal protection, petitioners contend that it conflicts directly with congressional policy and must fall under the Supremacy Clause of the Constitution. Finally, petitioners argue that 17 U.S.C. s 2, which allows States to protect unpublished writings,FN6 does not authorize the challenged state provision; since the records which petitioners copied had previously been released to the public, petitioners contend that they had, under federal law, been published. FN6. Title 17 U.S.C. s 2 provides: Nothing in this title shall be construed to annual or limit the right of the author or proprietor of an unpublished work, at common law or in equity, to prevent the copying, publication, or use of such unpublished work without his consent, and to obtain damages therefor. We note at the outset that the federal copyright statutes to which petitioners refer were amended by Congress while their case was pending in the state courts. In 1971, Pub.L. 92-140, 85 Stat. 391, 17 U.S.C. ss 1(f), 5(n), 19, 20, 26, 101(e), was passed to allow federal copyright protection of recordings. However, section 3 of the amendment specifically provides that such protection is to be available only to sound recordings fixed, published, and copyrighted on and after February 15, 1972, and before January 1, 1975, and that nothing in Title 17, as amended is to be applied retroactively or (to) be construed as affecting in any way any rights with respect to sound recordings fixed before February 15, 1972. The recordings which petitioners copied were all fixed prior 141

to February 15, 1972. Since, according to the language of the amendment, Congress did not intend to alter the legal relationships which govern these recordings, the amendments have no application in petitioners' case.FN7 FN7. No question is raised in the present case as to the power of the States to protect recordings fixed after February 15, 1972. II Petitioners' first argument rests on the premise that the state statute under which they were convicted lies beyond the powers which the States reserved in our federal system. If this is correct, petitioners must prevail, since the States cannot exercise a sovereign power which, under the Constitution, they have relinquished to the Federal Government for its exclusive exercise. A The principles which the Court has followed in construing state power were stated by Alexander Hamilton in Number 32 of The Federalist: An entire consolidation of the States into one complete national sovereignty would imply an entire subordination of the parts; and whatever powers might remain in them, would be altogether dependent on the general will. But as the plan of the (Constitutional) convention aims only at a partial union or consolidation, the State governments would clearly retain all the rights of sovereignty which they before had, and which were not, by that act, exclusively delegated to the United States. This exclusive delegation, or rather this alienation, of State sovereignty, would only exist in three cases: where the Constitution in express terms granted an exclusive authority to the Union; where it granted in one instance an authority to the Union, and in another prohibited the States from exercising the like authority; and where it granted an authority to the Union, to which a similar authority in the States would be absolutely and totally contradictory and repugnant.'FN8 FN8. The Federalist No. 32, p. 241 (B. Wright ed. 1961); see Cooley v. Board of Wardens, 12 How. 299, 318-319, 13 L.Ed. 996 (1851). The first two instances mentioned present no barrier to a State's enactment of copyright statutes. The clause of the Constitution granting to Congress the power to issue copyrights does not provide that such power shall vest exclusively in the Federal Government. Nor does the Constitution expressly provide that such power shall not be exercised by the States. In applying the third phase of the test, we must examine the manner in which the power to grant copyrights may operate in our federal system. The objectives of our inquiry were 142

recognized in Cooley v. Board of Wardens, 12 How. 299, 13 L.Ed. 996 (1852), when, in determining whether the power granted to Congress to regulate commerceFN9 was compatible with the existence of a similar power in the States, the Court noted: FN9. Art. I, s 8, cl. 3. Whatever subjects of this power are in their nature national, or admit only of one uniform system, or plan of regulation, may justly be said to be of such a nature as to require exclusive legislation by Congress. 12 How., Id., at 319. The Court's determination that Congress alone may legislate over matters which are necessarily national in import reflects the basic principle of federalism. . . . The question whether exclusive federal power must be inferred is not a simple one, for the powers recognized in the Constitution are broad and the nature of their application varied. The warning sounded by the Court in Cooley may equally be applicable to the Copyright Clause: Either absolutely to affirm, or deny that the nature of (the federal power over commerce) requires exclusive legislation by Congress, is to lose sight of the nature of the subjects of this power, and to assert concerning all of them, what is really applicable but to a part. 12 How. at 319. We must also be careful to distinguish those situations in which the concurrent exercise of a power by the Federal Government and the States or by the States alone may possibly lead to conflicts and those situations where conflicts will necessarily arise. It is not . . . a mere possibility of inconvenience in the exercise of powers, but an immediate constitutional repugnancy that can by implication alienate and extinguish a pre-existing right of (state) sovereignty. The Federalist No. 32, p. 243 (B. Wright ed. 1961). Article I, s 8, cl. 8, of the Constitution gives to Congress the powerTo promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Rights to their respective Writings and Discoveries . . .. The clause thus describes both the objective which Congress may seek and the means to achieve it. The objective is to promote the progress of science and the arts. As employed, the terms to promote are synonymous with the words to stimulate, to encourage, or to induce.'FN10 To accomplish its purpose, Congress may grant to authors the exclusive right to the fruits of their respective works. An author who possesses an unlimited copyright may preclude others from copying his creation for commercial purposes without permission. In other words, to encourage people to devote themselves to

143

intellectual and artistic creation, Congress may guarantee to authors and inventors a reward in the form of control over the sale or commercial use of copies of their works. FN10. See Kendall v. Winsor, 21 How. 322, 328, 16 LEd. 165 (1859); Mitchell v. Tilghman, 19 Wall. 287, 418, 22 L.Ed. 125 (1874); Bauer & Cie v. O'Donnell, 229 U.S. 1, 10, 33 S.Ct. 616, 617, 57 L.Ed. 1041 (1913). The objective of the Copyright Clause was clearly to facilitate the granting of rights national in scope. While the debates on the clause at the Constitutional Convention were extremely limited, its purpose was described by James Madison in the Federalist: The utility of this power will scarcely be questioned. The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of individuals. The States cannot separately make effectual provision for either of the cases, and most of them have anticipated the decision of this point, by laws passed at the instance of Congress.'FN11 FN11. The Federalist No. 43, p. 309 (B. Wright ed. 1961). The difficulty noted by Madison relates to the burden placed on an author or inventor who wishes to achieve protection in all States when no federal system of protection is available. To do so, a separate application is required to each state government; the right which in turn may be granted has effect only within the granting State's borders.FN12 The national system which Madison supported eliminates the need for multiple applications and the expense and difficulty involved. In effect, it allows Congress to provide a reward greater in scope than any particular State may grant to promote progress in those fields which Congress determines are worthy of national action. FN12. Numerous examples may be found in our early history of the difficulties which the creators of items of national import had in securing protection of their creations in all States. For example, Noah Webster, in his effort to obtain protection for his book, A Grammatical Institute of the English Language, brought his claim before the legislatures of at least six States, and perhaps as many as 12. See B. Bugbee, The Genesis of American Patent and Copyright Law 108-110, 120-124 (Wash., D.C., 1967); H.R.Rep.No.2222, 60th Cong., 2d Sess., 2 (1909). Similar difficulties were experienced by John Fitch and other inventors who desired to protect their efforts to perfect a steamboat. See Federico, State Patents, 13 J.Pat.Off.Soc. 166, 170-176 (1931). Although the Copyright Clause thus recognizes the potential benefits of a national system, it does not indicate that all writings are of national interest or that state legislation is, in all cases, unnecessary or precluded. The patents granted by the States in the 18th 144

century show, to the contrary, a willingness on the part of the States to promote those portions of science and the arts which were of local importance.FN13 Whatever the diversity of people's backgrounds, origins, and interests, and whatever the variety of business and industry in the 13 Colonies, the range of diversity is obviously far greater today in a country of 210 million people in 50 States. In view of that enormous diversity, it is unlikely that all citizens in all parts of the country place the same importance on works relating to all subjects. Since the subject matter to which the Copyright Clause is addressed may thus be of purely local importance and not worthy of national attention or protection, we cannot discern such an unyielding national interest as to require an inference that state power to grant copyrights has been relinquished to exclusive federal control. FN13. As early as 1751, Massachusetts granted to Benjamin Crabb the exclusive right to employ a specific process for the manufacture of candles out of whale oil. It is not clear whether Crabb invented the process. The Acts and Resolves, Public and Private, of the Province of the Massachusetts Bay, Vol. 3, Session of Jan. 10, 1751, c. 19, pp. 546-547 (1878). In 1780, Pennsylvania granted a patent to Henry Guest for the processing of tanning oil and blubber, noting specifically that the patent was a reward for his discovery and for the purpose of promoting useful manufactories in this state. The Statutes at Large of Pennsylvania from 1682 to 1801, Vol. 10, p. 132 (J. Mitchell & H. Flanders eds. 1904). Similarly, South Carolina granted protection to Peter Belin in 1786 for newly designed waterworks which aided in the production of rice, a staple of South Carolina agriculture, and other products. Another patent relating to the processing of rice was granted by South Carolina in 1788. The Statutes at Large of South Carolina, Vol. 4, p. 755 (T. Cooper ed. 1838); id., Vol. 5, p. 69 (1839). In 1787, Maryland granted a patent on a spinning and carding machine to encourage useful inventions, as well as promote the manufacture of cotton and wool within this state. . . . The Laws of Maryland, Vol. 2, Session of Nov. 6, 1786-Jan. 20, 1787, c. 23 (W. Kilty ed. 1800). In the same year, Pennsylvania patented certain devices relating to flour mills, noting that these devices would tend to simplify and render cheap the manufacture of flour which is one of the principal staples of this commonwealth . . .. The Statutes at Large of Pennsylvania from 1682 to 1801, Vol. 12, pp. 483-484 J. Mitchell & H. Flanders eds. 1906). The question to which we next turn is whether, in actual operation, the exercise of the power to grant copyrights by some States will prejudice the interests of other States. As we have noted, a copyright granted by a particular State has effect only within its boundaries. If one State grants such protection, the interests of States which do not are not prejudiced since their citizens remain free to copy within their borders those works which may be protected elsewhere. The interests of a State which grants copyright protection may, however, be adversely affected by other States that do not; individuals 145

who wish to purchase a copy of a work protected in their own State will be able to buy unauthorized copies in other States where no protection exists. However, this conflict is neither so inevitable nor so severe as to compel the conclusion, that state power has been relinquished to the exclusive jurisdiction of the Congress. Obviously when some States do not grant copyright protection-and most do not-that circumstance reduces the economic value of a state copyright, but it will hardly render the copyright worthless. The situation is no different from that which may arise in regard to other state monopolies, such as a state lottery, or a food concession in a limited enclosure like a state park; in each case, citizens may escape the effect of one State's monopoly by making purchases in another area or another State. Similarly, in the case of state copyrights, except as to individuals willing to travel across state lines in order to purchase records or other writings protected in their own State, each State's copyrights will still serve to induce new artistic creations within that State-the very objective of the grant of protection. We do not see here the type of prejudicial conflicts which would arise, for example, if each State exercised a sovereign power to impose imposts and tariffs;FN14 nor can we discern a need for uniformity such as that which may apply to the regulation of interstate shipments.FN15 FN14. The Federalist No. 42, p. 305 (B. Wright ed. 1961). FN15. Cf. Morgan v. Virginia, 328 U.S. 373, 66 S.Ct. 1050, 90 L.Ed. 1317 (1946); Bibb v. Navajo Freight Lines, 359 U.S. 520, 79 S.Ct. 962, 3 L.Ed.2d 1003 (1959); Southern Pacific Co. v. Arizona, 325 U.S. 761, 65 S.Ct. 1515, 89 L.Ed. 1915 (1945); Pennsylvania v. West Virginia, 262 U.S. 553, 43 S.Ct. 658, 67 L.Ed.2d 1117 (1923). Similarly, it is difficult to see how the concurrent exercise of the power to grant copyrights by Congress and the States will necessarily and inevitably lead to difficulty. At any time Congress determines that a particular category of writing is worthy of national protection and the incidental expenses of federal administration, federal copyright protection may be authorized. Where the need for free and unrestricted distribution of a writing is thought to be required by the national interest, the Copyright Clause and the Commerce Clause would allow Congress to eschew all protection. In such cases, a conflict would develop if a State attempted to protect that which Congress intended to be free from restraint or to free that which Congress had protected. However, where Congress determines that neither federal protection nor freedom from restraint is required by the national interest, it is at liberty to stay its hand entirely.FN16 Since state protection would not then conflict with federal action, total relinquishment of the States' power to grant copyright protection cannot be inferred. FN16. For example, Congress has allowed writings which may eventually be the subject of a federal copyright, to be protected under state law prior to publication. 17 U.S.C. s 2.

146

As we have seen, the language of the Constitution neither explicitly precludes the States from granting copyrights nor grants such authority exclusively to the Federal Government. The subject matter to which the Copyright Clause is addressed may at times be of purely local concern. No conflict will necessarily arise from a lack of uniform state regulation, nor will the interest of one State be significantly prejudiced by the actions of another. No reason exists why Congress must take affirmative action either to authorize protection of all categories of writings or to free them from all restraint. We therefor conclude that, under the Constitution, the States have not relinquished all power to grant to authors the exclusive Right to their respective Writings. B Petitioners base an additional argument on the language of the Constitution. The California statute forbids individuals to appropriate recordings at any time after release. From this, petitioners argue that the State has created a copyright of unlimited duration, in violation of that portion of Art. I, s 8, cl. 8, which provides that copyrights may only be granted for limited Times. Read literally, the text of Art. I does not support petitioners' position. Section 8 enumerates those powers which have been granted to Congress; Whatever limitations have been appended to such powers can only be understood as a limit on congressional, and not state, action. Moreover, it is not clear that the dangers to which this limitation was addressed apply with equal force to both the Federal Government and the States. When Congress grants an exclusive right or monopoly, its effects are pervasive; no citizen or State may escape its reach. As we have noted, however, the exclusive right granted by a State is confined to its borders. Consequently, even when the right is unlimited in duration, any tendency to inhibit further progress in science or the arts is narrowly circumscribed. The challenged statute cannot be voided for lack of a durational limitation. III Our conclusion that California did not surrender its power to issue copyrights does not end the inquiry. We must proceed to determine whether the challenged state statute is void under the Supremacy Clause. No simple formula can capture the complexities of this determination; the conflicts which may develop between state and federal action are as varied as the fields to which congressional action may apply. Our primary function is to determine whether, under the circumstances of this particular case, (the state) law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Hines v. Davidowitz, 312 U.S., 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). We turn, then, to federal copyright law to determine what objectives Congress intended to fulfill. By Art. I, s 8, cl. 8, of the Constitution, the States granted to Congress the power to protect the Writings' of Authors. These terms have not been construed in their narrow literal sense but, rather, with the reach necessary to reflect the broad scope of 147

constitutional principles. While an author may be viewed as an individual who writes an original composition, the term, in its constitutional sense, has been construed to mean an originator, he to whom anything owes its origin. Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 58, 4 S.Ct. 279, 281, 28 L.Ed. 349 (1884). Similarly, although the word writings' might be limited to script or printed material, it may be interpreted to include any physical rendering of the fruits of creative intellectual or aesthetic labor. Ibid.; Trade-Mark Cases, 100 U.S. 82, 94, 25 L.Ed. 550 (1879). Thus, recordings of artistic performances may be within the reach of Clause 8. While the area in which Congress may act is broad, the enabling provision of Clause 8 does not require that Congress act in regard to all categories of materials which meet the constitutional definitions. Rather, whether any specific category of Writings' is to be brought within the purview of the federal statutory scheme is left to the discretion of the Congress. The history of federal copyright statutes indicates that the congressional determination to consider specific classes of writings is dependent, not only on the character of the writing, but also on the commercial importance of the product to the national economy. As our technology has expanded the means available for creative activity and has provided economical means for reproducing manifestations of such activity, new areas of federal protection have been initiated.FN17 FN17. The first congressional copyright statute, passed in 1790, governed only maps, charts, and books. Act of May 31, 1790, c. 15, 1 Stat. 124. In 1802, the Act was amended in order to grant protection to any person who shall invent and design, engrave, etch or work . . . any historical or other print or prints . . .. Act of Apr. 29, 1802, c. 36, 2 Stat. 171. Protection was extended to musical compositions when the copyright laws were revised in 1831. Act of Feb. 3, 1831, c. 16, 4 Stat. 436. In 1865, at the time when Mathew Brady's pictures of the Civil War were attaining fame, photographs and photographic negatives were expressly added to the list of protected works. Act of Mar. 3, 1865, c. 126, 13 Stat. 540. Again in 1870, the list was augmented to cover paintings, drawings, chromos, statuettes, statuary, and models or designs of fine art. Act of July 8, 1870, c. 230, 16 Stat. 198.In 1909, Congress agreed to a major consolidation and amendment of all federal copyright statutes. A list of 11 categories of protected works was provided. The relevant sections of the Act are discussed in the text of our opinion. The House Report on the proposed bill specifically noted that amendment was required because the reproduction of various things which are the subject of copyright has enormously increased, and that the President has specifically recommended revision, among other reasons, because the prior laws omit(ted) provision for many articles which, under modern reproductive processes, are entitled to protection. H.R.Rep.No.2222, supra, n. 12, at 1 (quoting Samuel J. Elder and President Theodore Roosevelt).Since 1909, two additional amendments have been added. In 1912, the list of 148

categories in s 5 was expanded specifically to include motion pictures. The House Report on the amendment noted:The occasion for this proposed amendment is the fact that the production of motion-picture photoplays and motion pictures other than photoplays has become a business of vast proportions. The money invested therein is so great and the property rights so valuable that the committee is of the opinion that the copyright law ought to be so amended as to give to them distinct and definite recognition and protection. H.R.Rep.No.756, 62d Cong., 2d Sess., 1 (1912).Finally, in 1971, s 5 was amended to include sound recordings. Congress was spurred to action by the growth of record piracy, which was, in turn, due partly to technological advances. See Hearings on S.646 and H.R.6927, supra, n. 5, at 4-5, 11 (1971). It must be remembered that the record piracy charged against petitioners related to recordings fixed by the original producer prior to Feb. 15, 1972, the effective date of the 1971 Act. See supra, at 2307-2308. Petitioners contend that the actions taken by Congress in establishing federal copyright protection preclude the States from granting similar protection to recordings of musical performances. According to petitioners, Congress addressed the question of whether recordings of performances should be granted protection in 1909; Congress determined that any individual who was entitled to a copyright on an original musical composition should have the right to control to a limited extent the use of that composition on recordings, but that the record itself, and the performance which it was capable of reproducing were not worthy of such protection. FN18 In support of their claim, petitioners cite the House Report on the 1909 Act, which states: FN18. 17 U.S.C. s 1(e). It is not the intention of the committee to extend the right of copyright to the mechanical reproductions themselves, but only to give the composer or copyright proprietor the control, in accordance with the provisions of the bill, of the manufacture and use of such devices. H.R.Rep.No. 2222, 60th Cong., 2d Sess., 9 (1909). To interpret accurately Congress' intended purpose in passing the 1909 Act and the meaning of the House Report petitioners cite, we must remember that our modern technology differs greatly from that which existed in 1909. The Act and the report should not be read as if they were written today, for to do so would inevitably distort their intended meaning; rather, we must read them against the background of 1909, in which they were written. In 1831, Congress first extended federal copyright protection to original musical compositions. An individual who possessed such a copyright had the exclusive authority to sell copies of the musical score; individuals who purchased such a copy did so for the most part to play the composition at home on a piano or other instrument. Between 1831 149

and 1909, numerous machines were invented which allowed the composition to be reproduced mechanically. For example, one had only to insert a piano roll or disc with perforations in appropriate places into a player piano to achieve almost the same results which previously required someone capable of playing the instrument. The mounting sales of such devices detracted from the value of the copyright granted for the musical composition. Individuals who had use of a piano roll and an appropriate instrument had little, if any, need for a copy of the sheet music. FN19 The problems which arose eventually reached this Court in 1908 in the case of White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655. There, the Apollo Company had manufactured piano rolls capable of reproducing mechanically compositions covered by a copyright owned by appellant. Appellant contended that the piano rolls constituted copies' of the copyrighted composition and that their sale, without permission, constituted an infringement of the copyright. The Court held that piano rolls, as well as records, were not copies' of the copyrighted composition, in terms of the federal copyright statutes, but were merely component parts of a machine which executed the composition.FN20 Despite the fact that the piano rolls employed the creative work of the composer, all protection was denied. FN19. H.R.Rep.No.7083, 59th Cong., 2d Sess., pt. 2, p. 2 (1907) (Minority Report). FN20. After all, what is the perforated roll? The fact is clearly established in the testimony in this case that even those skilled in the making of these rolls are unable to read them as musical compositions, as those in staff notation are read by the performer. . . .These perforated rolls are parts of a machine which, when duly applied and properly operated in connection with the mechanism to which they are adapted, produce musical tones in harmonious combination. But we cannot think that they are copies within the meaning of the copyright act. White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1, 18, 28 S.Ct. 319, 323, 52 L.Ed. 655 (1908). It is against this background that Congress passed the 1909 statute. After pointedly waiting for the Court's decision in White-Smith Music Publishing Co. FN21 Congress determined that the copyright statutes should be amended to insure that composers of original musical works received adequate protection to encourage further artistic and creative effort. Henceforth, under s 1(e), records and piano rolls were to be considered as copies' of the original composition they were capable of reproducing, and could not be manufactured unless payment was made to the proprietor of the composition copyright. The section of the House Report cited by petitioners was intended only to establish the limits of the composer's right; composers were to have no control over the recordings themselves. Nowhere does the report indicate that Congress considered records as anything but a component part of a machine, capable of reproducing an original compositionFN22 or that Congress intended records, as renderings of original artistic performance, to be free from state control. FN23 150

FN21. H.R.Rep.No.7083, supra, n. 19, pt. 1, at 10; pt. 2, at 3-4. FN22. This is especially clear from the comment made by the Committee on Patents in regard to a foreign statute which, to some extent, protected performances. The committee stated that the foreign statute in no way affects the reproduction of such music by photographs, graphophones, or the ordinary piano-playing instruments, for in these instruments the reproduction is purely mechanical. H.R.Rep.No.2222, supra, n. 12, at 5. FN23. Petitioners do not argue that s 653h conflicts with that portion of 17 U.S.C. s 1(e) which provides:(W)henever the owner of a musical copyright has used or permitted or knowingly acquiesced in the use of the copyrighted work upon the parts of instruments serving to reproduce mechanically the musical work, any other person may make similar use of the copyrighted work upon the payment to the copyright proprietor of a royalty of 2 cents on each such part manufactured. . . .Assuming, arguendo, that petitioners' use of the composition they duplicated constitutes a similar use, the challenged state statute might be claimed to diminish the return which is due the composer by lessening the number of copies produced, and thus to conflict with s 1(e). However, as we have noted above, the means presently available for reproducing recordings were not in existence in 1909 when 17 U.S.C. s 1(e) was passed. We see no indication that the challenged state statute detracts from royalties which Congress intended the composer to receive. Furthermore, many state statutes may diminish the number of copies produced. Taxing statutes, for example, may raise the cost of producing or selling records and thereby lessen the number of records which may be sold or inhibit new companies from entering this field of commerce. We do not see in these statutes the direct conflict necessary to render a state statute invalid. Petitioners' argument does not rest entirely on the belief that Congress intended specifically to exempt recordings of performances from state control. Assuming that no such intention may be found, they argue that Congress so occupied the field of copyright protection as to pre-empt all comparable state action. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947). This assertion is based on the language of 17 U.S.C. ss 4 and 5, and on this Court's opinions in Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964), and Compco Corp. v. Day-Brite Lighting, 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964). Section 4 of the federal copyright laws provides: The works for which copyright may be secured under this title shall include all the writings of an author. 17 U.S.C. s 4. 151

Section 5, which lists specific categories of protected works, adds: The above specifications shall not be held to limit the subject-matter of copyright as defined in section 4 of this title . . .. 17 U.S.C. s 5. Since section 4 employs the constitutional term writings,'FN24 it may be argued that Congress intended to exercise its authority over all works to which the constitutional provision might apply. However, in the more than 60 years which have elapsed since enactment of this provision, neither the Copyright Office, the courts, nor the Congress has so interpreted it. The Register of Copyrights, who is charged with administration of the statute, has consistently ruled that claims to exclusive rights in mechanical recordings . . . or in the performances they reproduce are not entitled to protection under s 4. 37 CFR s 202.8(b) (1972).FN25 With one early exception,FN26 American courts have agreed with this interpretation; FN27 and in 1971, prior to passage of the statute which extended federal protection to recordings fixed on or after February 15, 1972, Congress acknowledged the validity of that interpretation. Both the House and Senate Reports on the proposed legislation recognized that recordings qualified as writings' within the meaning of the Constitution, but had not previously been protected under the federal copyright statute. H.R.Rep.No.92-487, pp. 2, 5 (1971); S.Rep.No.92-72, p. 4 (1971); U.S.Code Cong. & Admin.News p. 1566. In light of this consistent interpretation by the courts, the agency empowered to administer the copyright statutes, and Congress itself, we cannot agree that sections 4 and 5 have the broad scope petitioners claim. []. . . . FN24. H.R.Rep.No.2222, supra, n. 12, at 10. FN25. The registration of records under the provisions of the 1909 Act would give rise to numerous administrative difficulties. It is difficult to discern how an individual who wished to copyright a record could comply with the notice and deposit provisions of the statute. 17 U.S.C. ss 12, 13, 19, 20. Nor is it clear to whom the copyright could rightfully be issued or what constituted publication. Finally, the administrative and economic burden of classifying and maintaining copies of records would have been considerable. See Chafee, Reflections on the Laws of Copyright: II, 45 Col.L.Rev. 719, 735 (1945); Ringer, The Unauthorized Duplication of Sound Recordings, Studies Prepared for the Subcommittee on Patents, Trademarks, and Copyrights of the Senate Committee on the Judiciary, 86th Cong., 2d Sess., 2 (Comm.Print 1961); Hearings on S.646 and H.R.6927, supra, n. 5, at 11, 14. FN26. Fonotipia, Ltd. v. Bradley, 171 F. 951, 963 (EDNY 1909). FN27. Aeolian Co. v. Royal Music Roll Co., 196 F. 926, 927 (WDNY 1912); Waring v. WDAS Broadcasting Station, 327 Pa. 433, 437-438, 194 152

A. 631, 633-634 (1937); Capitol Records v. Mercury Records Corp., 221 F.2d 657, 661-662 (CA2 1955); Jerome v. Twentieth Century Fox-Film Corp., 67 F.Supp. 736, 742 (SDNY 1946). V More than 50 years ago, Mr. Justice Brandeis observed in dissent in International News Service v. Associated Press: The general rule of law is, that the noblest of human productions-knowledge, truths ascertained, conceptions, and ideas-become, after voluntary communication to others, free as the air to common use. 248 U.S. 215, 250, 39 S.Ct. 68, 76, 63 L.Ed. 211 (1918). But there is no fixed, immutable line to tell us which human productions' are private property and which are so general as to become free as the air. In earlier times, a performing artist's work was largely restricted to the stage; once performed, it remained recorded only in the memory of those who had seen or heard it. Today, we can record that performance in precise detail and reproduce it again and again with utmost fidelity. The California statutory scheme evidences a legislative policy to prohibit tape piracy and record piracy, conduct that may adversely affect the continued production of new recordings, a large industry in California. Accordingly, the State has, by statute, given to recordings the attributes of property. No restraint has been placed on the use of an idea or concept; rather, petitioners and other individuals remain free to record the same compositions in precisely the same manner and with the same personnel as appeared on the original recording. In sum, we have shown that section 653h does not conflict with the federal copyright statute enacted by Congress in 1909. Similarly, no conflict exists between the federal copyright statute passed in 1971 and the present application of section 653h, since California charged petitioners only with copying recordings fixed prior to February 15, 1972.FN29 Finally, we have concluded that our decisions in Sears and Compco, which we reaffirm today, have no application in the present case, since Congress has indicated neither that it wishes to protect, nor to free from protection, recordings of musical performances fixed prior to February 15, 1972. FN29. Supra, at 2307. We conclude that the State of California has exercised a power which it retained under the Constitution, and that the challenged statute, as applied in this case, does not intrude into an area which Congress has, up to now, preempted. Until and unless Congress takes further action with respect to recordings fixed prior to February 15, 1972, the California statute may be enforced against acts of piracy such as those which occurred in the present case. Affirmed. [Mr. Justice DOUGLAS, Mr. Justice MARSHALL, Mr. Justice BRENNAN and Mr. Justice BLACKMUN dissented.

153

2.

Sound Recording Act of 1971

154

155

3. Ringer Report on Performance Rights in Sound Recordings, Addendum to Report, 42 Fed. Reg. 12,763-8 (March 27, 1978)

156

157

158

159

160

[] . . .

161

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B.

The 1976 Copyright Act and Preemption 1. 17 U.S.C. Section 301

301. Preemption with respect to other laws (a) On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State. (b) Nothing in this title annuls or limits any rights or remedies under the common law or statutes of any State with respect to-(1) subject matter that does not come within the subject matter of copyright as specified by sections 102 and 103, including works of authorship not fixed in any tangible medium of expression; or (2) any cause of action arising from undertakings commenced before January 1, 1978; (3) activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106; or (4) State and local landmarks, historic preservation, zoning, or building codes, relating to architectural works protected under section 102(a)(8). (c) With respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this title until February 15, 2067. The preemptive provisions of subsection (a) shall apply to any such rights and remedies pertaining to any cause of action arising from undertakings commenced on and after February 15, 2067. Notwithstanding the provisions of section 303, no sound recording fixed before February 15, 1972, shall be subject to copyright under this title before, on, or after February 15, 2067.

163

2.

State True Name and Address Statutes

a. Cal. Penal Code 653w. Failure to disclose origin of recording or audiovisual work; violations; punishment (a) A person is guilty of failure to disclose the origin of a recording or audiovisual work if, for commercial advantage or private financial gain, he or she knowingly advertises or offers for sale or resale, or sells or resells, or causes the rental, sale or resale, or rents, or manufactures, or possesses for these purposes, any recording or audiovisual work, the cover, box, jacket, or label of which does not clearly and conspicuously disclose the actual true name and address of the manufacturer thereof and the name of the actual author, artist, performer, producer, programmer, or group thereon. This section does not require the original manufacturer or authorized licensees of software producers to disclose the contributing authors or programmers. As used in this section, "recording" means any tangible medium upon which information or sounds are recorded or otherwise stored, including any phonograph record, disc, tape, audio cassette, wire, film, or other medium on which information or sounds are recorded or otherwise stored, but does not include sounds accompanying a motion picture or other audiovisual work. As used in this section, "audiovisual works" are the physical embodiment of works that consist of related images that are intrinsically intended to be shown using machines or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects such as films or tapes on which the works are embodied. (b) Any person who has been convicted of a violation of subdivision (a) shall be punished as follows: (1) If the offense involves the advertisement, offer for sale or resale, sale, rental, manufacture, or possession for these purposes, of at least 100 articles of audio recordings or 100 articles of audiovisual works described in subdivision (a), the person shall be punished by imprisonment in a county jail not to exceed one year, or by imprisonment in the state prison for two, three, or five years, or by a fine not to exceed two hundred fifty thousand dollars ($250,000), or by both. (2) Any other violation of subdivision (a) not described in paragraph (1), shall, upon a first offense, be punished by imprisonment in a county jail not to exceed one year, or by a 164

fine not to exceed twenty-five thousand dollars ($25,000), or by both. (3) A second or subsequent conviction under subdivision (a) not described in paragraph (1), shall be punished by imprisonment in a county jail not to exceed one year or in the state prison, or by a fine not to exceed one hundred thousand dollars ($100,000), or by both.

165

b.

Anderson v. Nidorf, 26 F.3d 100 (9th Cir. 1994)

OVERVIEW Cletus Robert Anderson appeals the district court's denial of his habeas corpus petition challenging his conviction under California Penal Code 653w for failure to disclose the origin of a sound recording. Anderson claims that this California statute is preempted by federal copyright laws and violates the First Amendment. We have jurisdiction under 28 U.S.C. 1291 and affirm. BACKGROUND At a flea market in May of 1990, a Los Angeles County Deputy Sheriff approached Cletus Anderson, who was selling almost 5,000 tapes which appeared to be pirated. [FN1] When Anderson could not produce any documentation demonstrating the origin or manufacturer of the tapes, he was arrested for failure to disclose the origin of a sound recording, in violation of California Penal Code 653w. [FN2] FN1. "Piracy is the term used for unauthorized duplication of original commercial products." See Piracy and Counterfeiting Amendments Act of 1982, S.Rep. No. 97-274, 97th Cong. 1st Sess. 3, reprinted in 2 U.S.Code Cong. & Admin.News 127, 129 (1982). This is to be distinguished from "bootlegging" which is the unauthorized recording of a performance. FN2. Section 653w(a) provides in relevant part: A person is guilty of failure to disclose the origin of a recording or audiovisual work when, for commercial advantage or private financial gain, he or she knowingly advertises or offers for sale or resale, or sells or resells, or causes the rental, sale or resale, or rents, or manufactures, or possesses for these purposes, any recording or audiovisual work, the outside cover box or jacket of which does not clearly and conspicuously disclose the actual true name and address of the manufacturer thereof and the name of the actual author, artist, performer, producer, programmer, or group. Anderson waived a jury trial and was convicted by the state court on November 20, 1990. He was sentenced to 180 days in county jail and five years probation. A California Court of Appeals affirmed Anderson's conviction on appeal, rejecting his arguments that the California statute was preempted by federal copyright laws and that his conviction violated the First Amendment. People v. Anderson, 235 Cal.App.3d 586, 286 Cal.Rptr. 734 (1991). The California Supreme Court denied review on January 22, 1992. Anderson then filed a petition for habeas corpus in federal district court, but accepted a dismissal without prejudice in order to petition the California courts for postconviction relief. After the California Supreme Court denied Anderson's state petition for habeas corpus on May 27, 1992, Anderson filed a second petition in federal district court. The court adopted the magistrate judge's Report and Recommendation denying 166

Anderson's petition for habeas corpus. DISCUSSION A district court's decision on a petition for writ of habeas corpus is reviewed de novo. Lincoln v. Sunn, 807 F.2d 805, 808 (9th Cir.1987). I. Is California Penal Code 653w preempted by federal copyright laws? The federal copyright laws preempt state-created "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright." 17 U.S.C. 301(a). We have held: Section 301(a) preempts a state-created right if that right "may be abridged by an act which, in and of itself, would infringe one of the exclusive rights [listed in 106]." But if violation of the state right is "predicated upon an act incorporating elements beyond mere reproduction or the like," there is no preemption. Oddo v. Ries, 743 F.2d 630, 635 (9th Cir.1984) (citations omitted). See also G.S. Rasmussen & Assoc. v. Kalitta Flying Service, Inc., 958 F.2d 896, 904 (9th Cir.1992) (following Oddo), cert. denied, 508 U.S. 959, 113 S.Ct. 2927, 124 L.Ed.2d 678 (1993). Anderson argues that 653w is preempted by copyright laws because 653w is intended to protect the rights of copyright owners through the prevention of pirating. It is clear that this is one of the purposes of the statute. The California Court of Appeals explained: Penal Code section 653w was enacted as part of a comprehensive statutory scheme designed to prevent and punish the misappropriation of recorded music for commercial advantage or private financial gain. (Pen.Code, 653h.) .... The state's interest in enacting Penal Code section 653w is the desire to protect the public in general, and the many employees of the vast entertainment industry in particular, from the hundreds of millions of dollars in losses suffered as a result of the "piracy and bootlegging" of the industry's products. Anderson, 286 Cal.Rptr. at 735, 737. However, the statute also has the purpose of "protecting the public from being victimized by false and deceptive commercial practices." Id. at 737. This point was made by the district court: [Anderson's] argument ignores the other purpose the legislative materials ... show Section 653w was designed to serve: 'assist[ing] consumers in this state by mandating that manufacturers market product[s] for which consumers can go back to the source if there are any problems or complaints.' Preemption would frustrate the State's objective of consumer protection through disclosure. [ER 18 n. 4. (emphasis in original; internal citations omitted).] Federal copyright laws do not serve this purpose of protecting consumers. They are designed to protect the property rights of copyright owners. See, e.g., Wheaton v. Peters, 33 U.S. (8 Pet.) 591, 167

603, 8 L.Ed. 1055 (1834). Further, the California statute criminalizes selling recordings whose labels fail to disclose the manufacturer or author; it does not criminalize unauthorized duplication or "bootlegging" of copyrighted works. An act criminalized by 653w thus does not "in and of itself ... infringe one of the exclusive rights" listed in the copyright laws. Oddo, 743 F.2d at 635. The statute incorporates "elements beyond mere reproduction or the like," id., i.e. failing to appropriately label recordings for sale. Because 653w does not prohibit the reproduction of copyrighted works, but rather prohibits selling recordings without disclosing the manufacturer and author of the recording (regardless of its copyright status), the federal copyright laws do not preempt the state statute. . . . CONCLUSION The district court's denial of Anderson's petition for writ of habeas corpus is AFFIRMED.

C.

Radio Deregulation and Its Effect on the Music Industry

1.

Telecommunications Act of 1996, Section 202 PL 104-104 (S 652), February 8, 1996 TELECOMMUNICATIONS ACT OF 1996

An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies. . . . SEC. 202. BROADCAST OWNERSHIP. (a) NATIONAL RADIO STATION OWNERSHIP RULE CHANGES REQUIRED.-The Commission shall modify section 73.3555 of its regulations (47 C.F.R. 73.3555) by eliminating any provisions limiting the number of AM or FM broadcast stations which may be owned or controlled by one entity nationally. (b) LOCAL RADIO DIVERSITY.-(1) APPLICABLE CAPS.--The Commission shall revise section 73.3555(a) of its regulations (47 C.F.R. 73.3555) to provide that 168

(A) in a radio market with 45 or more commercial radio stations, a party may own, operate, or control up to 8 commercial radio stations, not more than 5 of which are in the same service (AM or FM); (B) in a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate, or control up to 7 commercial radio stations, not more than 4 of which are in the same service (AM or FM); (C) in a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate, or control up to 6 commercial radio stations, not more than 4 of which are in the same service (AM or FM); and (D) in a radio market with 14 or fewer commercial radio stations, a party may own, operate, or control up to 5 commercial radio stations, not more than 3 of which are in the same service (AM or FM), except that a party may not own, operate, or control more than 50 percent of the stations in such market. (2) EXCEPTION.--Notwithstanding any limitation authorized by this subsection, the Commission may permit a person or entity to own, operate, or control, or have a cognizable interest in, radio broadcast stations if the Commission determines that such ownership, operation, control, or interest will result in an increase in the number of radio broadcast stations in operation.

2.

Prometheus Radio Project v. F.C.C., 373 F.3d 372 (3d Cir. 2004)

OPINION OF THE COURT AMBRO, Circuit Judge. In these consolidated appeals we consider revisions by the Federal Communications Commission to its regulations governing broadcast media ownership that the Commission promulgated following its 2002 biennial review. On July 2, 2003, the Commission announced a comprehensive overhaul of its broadcast media ownership rules. It increased the number of television stations a single entity may own, both locally and nationally; revised various provisions of the regulations governing common ownership of radio stations in the same community; and replaced two existing rules limiting common ownership among newspapers and broadcast stations (the newspaper/broadcast crossownership rule and the radio/television cross-ownership rule) with a single set of CrossMedia Limits. See Report and Order and Notice of Proposed Rulemaking, 18 F.C.C.R. 13,620, 2003 WL 21511828 (2003) (the Order). 169

[] . . . For the reasons stated below, we affirm the power of the Commission to regulate media ownership. In doing so, we reject the contention that the Constitution or 202(h) of the 1996 Act somehow provides rigid limits on the Commission's ability to regulate in the public interest. But we must remand certain aspects of the Commission's Order that are not adequately supported by the record. Most importantly, the Commission has not sufficiently justified its particular chosen numerical limits for local television ownership, local radio ownership, and cross-ownership of media within local markets. Accordingly, we partially remand the Order for the Commission's additional justification or modification, and we partially affirm the Order. The stay will continue pending our review of the Commission's action on remand. [FN3 omitted] I. Background A. The 1934 Communications Act and Early Broadcast Ownership Regulation In 1934 Congress authorized the Commission to grant licenses for private parties' exclusive use of broadcast frequencies. Recognizing that the finite radio frequency spectrum inherently limits the number of broadcast stations that can operate without interfering with one another, Congress required that broadcast licensees serve the public interest, convenience, and necessity. Communications Act of 1934, 47 U.S.C. 309(a); see also id. 307(a), 310(d), 312. In setting its licensing policies, the Commission has long acted on the theory that diversification of mass media ownership serves the public interest by promoting diversity of program and service viewpoints, as well as by preventing undue concentration of economic power. FCC v. Nat'l Citizens Comm. for Broad., 436 U.S. 775, 780, 98 S.Ct. 2096, 56 L.Ed.2d 697 (1978) ( NCCB). The Commission's early regulations reflected its presumption that a single entity holding more than one broadcast license in the same community contravened public interest. See Genesee Radio Corp., 5 F.C.C. 183, 186-87 (1938). In 1941, the Commission announced that it would not license more than one station in the same area to a single network organization. See Nat'l Broad. Co. v. United States, 319 U.S. 190, 206-08, 224-27, 63 S.Ct. 997, 87 L.Ed. 1344 (1943) (upholding the rule). At the same time, the Commission prohibited common ownership of stations within the same broadcast service (AM radio, FM radio, and television) in the same community. See Rules Governing Standard and High Frequency Broadcast Stations, 5 Fed. Reg. 2382, 2384 (June 26, 1940) (FM radio); Rules Governing Standard and High Frequency Broadcast Stations, 6 Fed. Reg. 2282, 2284-85 (May 6, 1941) (television); Rules Governing Standard and High Frequency Broadcast Stations, 8 Fed. Reg. 16065 (Nov. 27, 1943) (AM radio). Regulations limiting an entity to the common ownership of seven AM radio stations, seven FM radio stations, and seven television stations survived judicial scrutiny in 1956. See United States v. Storer Broad. Co., 351 U.S. 192, 76 S.Ct. 763, 100 L.Ed. 1081 (1956). In the 1970s the Commission adopted its first crossownership bans, which prohibited, on a prospective basis, the common ownership of 170

television and radio stations serving the same market, as well as combinations of radio or broadcast stations with a daily newspaper in the same community. Amendment of Sections 73.35, 73.240 and 73.636 of the Commission Rules Relating to Multiple Ownership of Standard, FM and Television Broadcast Stations, 22 F.C.C.2d 306, 5, 1970 WL 18044 (1970); Amendment of Sections 73.34, 73.240 and 73.636 of the Commission's Rules Relating to Multiple Ownership of Standard, FM, and Television Broadcast Stations, 50 F.C.C.2d 1046, 1975 WL 30457 (1975). The Supreme Court upheld the newspaper/broadcast cross-ownership ban as a reasonable means of promoting the public interest in diversified mass communications. NCCB, 436 U.S. at 802, 98 S.Ct. 2096. B. Deregulation Initiatives The 1980s saw a deregulatory trend for media ownership. The Commission raised its national ownership limits to permit common ownership of 12 stations in each broadcast service (though still prohibiting station combinations that would reach more than 25% of the national audience). Amendment of Section 73.3555 (formerly 73.35, 73.240, and 73.636) of the Commission's Rules Relating to Multiple Ownership of AM, FM, and Television Broadcast Stations, 100 F.C.C.2d 74 38, 39, 1985 WL 260060 (1985). The Commission also determined that UHF television stations should not be deemed to have the same audience reach as VHF stations,FN4 due to the inherent physical limitations of [the UHF] medium, and therefore applied a 50% discount to UHF audiences as counted under the national audience limitation. Id. 42-44. In other words, UHF stations count only half of their audiences in determining compliance with the national television ownership rule. FN4. VHF (Very High Frequency) stations (channels 2 to 13), which broadcast on frequencies between 30 and 300 MHz, can reach households up to 76 miles away. UHF (Ultra High Frequency) stations (channels higher than 13), which broadcast between 300 and 3000 MHz-reach only 44 miles, and, consequently, far fewer non-cable households than VHF stations. Order 586. In 1989 the Commission eased its one to a market radio/television cross-ownership rules by allowing waiver requests for radio/television cross-ownership in the 25 largest television markets. The Commission stated that it would look favorably upon requests for waivers where there would be 30 independently owned broadcast voices remaining in the market after consolidation. Amendment of Section 73.3555 of the Commission's Rules, the Broadcast Multiple Ownership Rules, 4 F.C.C.R. 1741, 1, 1989 WL 510875 (1989). In 1992, the Commission relaxed local and national radio ownership restrictions and adopted a tiered approach to radio concentration that allowed a single entity to own more radio stations in the largest markets (up to three AM and three FM stations, subject to a local audience reach limitation of 25% and a national cap of 30 AM stations and 30

171

FM stations) and fewer in the smallest markets. Revision of Radio Rules and Policies, 7 F.C.C.R. 6387, 27, 1992 WL 690638 (1992). C. The Telecommunications Act of 1996 In 1996 Congress overhauled the Communications Act by enacting the Telecommunications Act of 1996. The 1996 Act contemplated a pro-competitive, deregulatory national policy framework designed to accelerate rapidly private sector development of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition. S.Rep. No. 104-230, at 1-2 (1996). The 1996 Act eliminated all limits on national radio ownership and raised the national television audience reach cap from 25% to 35%. 1996 Act 202(a), (c)(1)(B), 110 Stat. at 110-11. Congress also eased local radio ownership limits, establishing a four-tier sliding scale limit of numerical caps that allowed for as many as eight co-owned radio stations in the largest markets. Id. 202(b)(1), 110 Stat. at 110. [] . . . Finally, the 1996 Act instructed the Commission to review biennially its broadcast ownership rules to determine whether any of such rules are necessary in the public interest as the result of competition. Id. 202(h), 110 Stat. at 111-12. Section 202(h) also required the Commission to repeal or modify any regulation it determines to be no longer in the public interest. Id. D. Regulatory Review Since 1996 In 1999 the Commission responded to Congress's directive under 202(c) of the 1996 Act to review its local television rule and announced that it would relax its prohibition on the common ownership of television stations with overlapping signals. . . . In the same rulemaking, the Commission also relaxed the one-to-a-market radio/television crossownership restriction and allowed radio/television station combinations to exist within three-tiered limits that depend on the size of the market. Id. 9.FN5 FN5. These limits allowed an entity to own one television station (or two if permitted under the new local television rule) and (1) up to six radio stations in markets where at least 20 independent voices would remain post-merger, (2) up to four radio stations in markets where at least 10 independent voices would remain post-merger, or (3) one radio station notwithstanding the number of independent voices in the market. Id. Meanwhile, in 1998 the Commission began the first biennial review of its broadcast ownership regulations as required under 202(h). . . . E. The Commission's 2003 Report and Order In September 2002 a Notice of Proposed Rulemaking (the Notice) announced that the Commission would review four of its broadcast ownership rules pursuant to 202(h): the 172

35% national audience reach limit remanded in Fox; the local television rule remanded in Sinclair; the radio/television cross-ownership rule; and the dual network rule. 2002 Biennial Regulatory Review Notice of Proposed Rulemaking, 17 F.C.C.R. 18,503, 6, 2002 WL 31108252 (2002). The Notice also advised that the Commission was incorporating into its biennial review pending proceedings on two additional rules: its rule limiting radio station ownership in local markets and its rule prohibiting newspaper/broadcast cross-ownership. Id. 7. The Commission established a Media Ownership Working Group (MOWG), which commissioned twelve studies ranging from consumer surveys to economic analyses of media markets. These reports were released for public comment in October 2002. Interested parties filed thousands of pages of comments, consisting of legal, social, and economic analyses, empirical and anecdotal evidence, and industry and consumer data to respond to the issues identified in the Commission's Notice. Notably, nearly two million people weighed in by letters, postcards, e-mails, and petitions to oppose further relaxation of the rules. Statement of Commissioner Jonathan S. Adelstein, Dissenting, 18 F.C.C.R. 13,974, 13,977, 2003 WL 21251887 (July 2, 2003). The Commission also heard public comment at a February 2003 field hearing in Richmond, Virginia. [FN7 omitted] On June 2, 2003, the Commission adopted the Order modifying its ownership rules to provide a new, comprehensive framework for broadcast ownership regulation by a vote of 3-2. [FN8 omitted] Order 3. The Order was released on July 2, 2003. F. The Order's Modification of Broadcast Media Ownership Rules After reaffirming the Commission's three traditional policy objectives in promoting the public interest-competition, diversity, and localism- Order 8, the Commission considered whether each of the six rules remained in the public interest and proposed modifications where it believed necessary. With respect to each of the rules, the Commission determined as follows. [] . . . 2. Local Radio Ownership Although the Order retained the existing numerical limits on radio ownership that Congress established in 202(b) of the 1996 Act,FN9 it modified other aspects of the rule. First, it changed the method for determining radio markets by replacing the contour-overlap method (described in detail in Part VI.B infra) with the geographybased market delineations created by Arbitron, a company that generates market data for radio advertisers. Order 239. Additionally, the Commission would now include noncommercial stations in the station count for each market. Id. The Commission grandfathered any existing radio station combinations rendered noncompliant under the newly defined markets, id. 484, but generally restricted transfer of these combinations, id. 487. The Commission also changed the local radio ownership rule by deciding to attribute Joint Sales Agreements (agreements under which a licensee sells advertising 173

time on its station to a broker station for a fee) toward the brokering entity's numerical limit. Id. 239. FN9. In the 1996 Act, Congress directed the Commission to revise the local radio ownership limits to provide that: (1) in a radio market with 45 or more commercial radio stations, a party may own up to 8 commercial radio stations, not more than 5 of which are in the same service (AM or FM); (2) in a radio market with between 30 and 44 commercial radio stations, a party may own up to 7 commercial radio stations, not more than 4 of which are in the same service; (3) in a radio market with between 15 and 29 commercial radio stations, a party may own up to 6 commercial stations, not more than 4 of which are in the same service; and (4) in a market with 14 or fewer commercial radio stations, a party may own up to 5 commercial radio stations, not more than 3 of which are in the same service, except that a party may not own more than 50 percent of the stations in that market. 1996 Act, 202(b)(1), 110 Stat. at 110.

3 & 4. Newspaper/Broadcast and Radio/Television Cross-Ownership The Commission has prohibited common ownership of a full-service television broadcast station and a daily public newspaper in the same community since 1975. Amendment of Sections 73.35, 73.240, and 73.636 of the Commission's Rules Relating to Multiple Ownership of Standard, FM, and Television Broadcast Stations, 50 F.C.C.2d 1046, 1975 WL 30457 (1975). Additionally, the Commission regulates the number of television and radio stations that may be commonly owned with limits that vary with the size of the market. 47 C.F.R. 73.3555(c). The Order announced the Commission's decision to repeal both cross-ownership rules (television/newspaper, radio/television) and replace them with a single set of CrossMedia Limits. The Commission determined that neither cross-ownership prohibition remained necessary in the public interest to ensure competition, diversity, or localism. Order 330, 371. The new Cross-Media Limits prohibit newspaper/broadcast combinations and radio/television combinations in the smallest DMAs, i.e., those with three or fewer full-power commercial or noncommercial television stations. Id. 454. In contrast, in the largest markets-those with more than eight television stations-common ownership among newspapers and broadcast stations is unrestricted. Id. 473. In medium-sized markets-those with between four and eight television stations-one entity may own a newspaper and either (a) one television station and up to 50% of the radio stations that may be commonly owned in that market under the local radio rule or (b) up to 100% of the radio stations allowed under the local radio rule. Id. 466. [] . . . VII. Conclusion

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Though we affirm much of the Commission's Order, we have identified several provisions in which the Commission falls short of its obligation to justify its decisions to retain, repeal, or modify its media ownership regulations with reasoned analysis. The Commission's derivation of new Cross-Media Limits, and its modification of the numerical limits on both television and radio station ownership in local markets, all have the same essential flaw: an unjustified assumption that media outlets of the same type make an equal contribution to diversity and competition in local markets. We thus remand for the Commission to justify or modify its approach to setting numerical limits. We also remand for the Commission to reconsider or better explain its decision to repeal the FSSR. [FN82 omitted] The stay currently in effect will continue pending our review of the Commission's action on remand, over which this panel retains jurisdiction.

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3. Consolidation in the Radio Industry and Its Impact on Music: In Re 2006 Quadrennial Regulatory Review Review of the Commissions Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 23 F.C.C.R. 2010 (Released Feb. 4, 2008)

Report and Order and Order on Reconsideration [*footnotes omitted] II. BACKGROUND 2. History of the Proceeding. We initiated this 2006 Quadrennial Review proceeding with the Further Notice of Proposed Rule Making ( Further Notice ).[FN7] In addition to inviting comment on whether the ownership rules remain necessary in the public interest as the result of competition, under the Section 202(h) standard, the Further Notice invited comment on how to address the issues raised by the U.S. Court of Appeals for the Third Circuit in its Prometheus decision[FN8] and those raised by the U.S. Court of Appeals for the District of Columbia Circuit in Sinclair Broadcast Group, Inc. v. FCC.[FN9] This Order addresses all of those issues. 3. The Prometheus decision reviewed the 2002 Biennial Review Order,[FN10] which addressed all of the Commission's broadcast ownership rules. The Commission concluded that neither the newspaper/broadcast cross-ownership rule nor the radio/television cross-ownership rule remained necessary in the public interest. Accordingly, it replaced those rules with new cross-ownership regulations called the cross-media limits. The Commission also revised its market definition and the way it counts stations for purposes of the local radio ownership rule, revised the local television ownership rule, modified the national television ownership cap, and retained the dual network rule. Several parties sought appellate review of various aspects of the 2002 Biennial Review Order; others filed petitions for reconsideration. 4. The Third Circuit stayed the effectiveness of the new rules pending review.[FN11] In its subsequent decision on the merits, the court affirmed some of the Commission's decisions in the 2002 Biennial Review Order and remanded others for further justification or modification.[FN12] On September 3, 2004, in response to the Commission's petition for rehearing, the court allowed certain revisions to its local radio ownership rules -- specifically, using Arbitron Metro markets to define local markets, including noncommercial stations in determining the size of a market, attributing stations whose advertising is brokered under a Joint Sales Agreement to a brokering station's permissible ownership totals, and imposing a transfer restriction (collectively, the Approved Changes') - to go into effect, but continued its stay of the other revisions.[FN13] Accordingly, except for the Approved Changes, the ownership rules that were in effect prior to the 2002 Biennial Review Order, including the previously existing newspaper/

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broadcast cross-ownership prohibition, radio/television cross-ownership rule, and local television ownership rule, remain in effect. 5. In response to our Further Notice and Second Further Notice in this proceeding, we received many comments from a broad range of commenters, including broadcasters, newspapers, public interest groups, unions, and individual citizens. While many commenters believe that relaxation of the media ownership rules is necessary to promote our goals and that the current rules must be revised or eliminated under the statutory standard, many other commenters expressed significant concerns about the general level and potential consequences of media consolidation, including concerns that such consolidation results in a loss of viewpoint diversity and negatively affects competition. In addition, the Commission conducted or commissioned ten studies and received numerous other studies in the record of the proceeding.[FN14] The Commission also conducted six media ownership hearings around the country and heard widely divergent testimony from a number of commenters and speakers at open microphones as to whether the media ownership rules should be relaxed, retained, or even tightened.[FN15] We have carefully reviewed these comments, as well as the studies and the testimony.[FN16] Our approach herein is a cautious approach. By modestly loosening the 32-year prohibition on newspaper/broadcast cross-ownership, our approach balances the concerns of many commenters that we not permit excessive consolidation with concerns of other commenters that we afford some relief to assure continued diversity and investment in local news programming. We believe that the decisions we adopt today serve our public interest goals, appropriately take account of the current media marketplace, and comply with our statutory responsibilities.[FN17] 6. Media Marketplace. As discussed in succeeding sections in more detail, today's media marketplace remains a dynamic arena, albeit one in which the traditional mainstream media still maintain leading roles in many respects and are learning to adapt to the new digital and online environment. In 2002, the Commission noted the substantial evolution of traditional media ( i.e., daily newspapers and full-power television and radio stations) and the emergence of new modes of media ( e.g., portable devices, the Internet).[FN18] Whereas the years immediately preceding 2002 were largely characterized by dramatic technological advancements, the current record reflects that many noteworthy developments appear more in the nature of technological and marketplace refinements than the advent of wholly new media. The online medium in particular is well-recognized as another platform for the delivery of audio, video and written content.[FN19] Today, media companies both old and new are working to identify the best use of technology in order to maintain their competitive positions.[FN20] 7. Five years ago, the Commission recognized that digital technologies were beginning to translate into more options for consumers.[FN21] Since that time, it has become clear that additional consumer choices also bring audience fragmentation.[FN22] That development, in turn, has consequences for the business models that support the operation of traditional media companies -- including, but not limited to, those entities' gathering and disseminating of news and information to their local communities. The record shows that 177

the number of traditional media outlets has remained largely static since the Commission last considered its media ownership rules,[FN23] even as online-only outlets have grown.[FN24] As a result, traditional media entities have been trying to find ways to maintain revenue growth while implementing new models of distribution.[FN25] With attention turned to the online and digital environment, consolidation among owners of broadcast stations appears to have slowed,[FN26] while the stability of once- storied newspaper publishing companies has become open to question.[FN27] 8. Yet while the marketplace is fragmenting and the revenue needed to maintain traditional media operations appears to be declining,[FN28] the data also show that mainstream media continue to hold a major position in the marketplace, particularly in the markets for the provision of news and information. Commission-sponsored studies and those of third parties indicate that consumers still rely most heavily on broadcast television stations and daily newspapers for local news and other non-entertainment fare.[FN29] Consumers rely on broadcast radio stations to a lesser extent.[FN30] Moreover, studies focused on the specifics of Internet usage to obtain news show that sites operated by newspapers and broadcast television stations capture a significant percentage of consumer attention.[FN31] This appears to be due in part to the power of branding in a competitive marketplace; existing newspapers and broadcasters enjoy the benefits of years of consumer familiarity and trust.[FN32] This also may be due to the fact that traditional media still largely provide the original newsgathering and reporting on which consumers -- and many of the new media outlets such as aggregator sites and bloggers -rely.[FN33] Although the future landscape of the online media world is difficult to predict, for the foreseeable period ahead it appears that traditional media outlets will remain important sources of news and information, especially at the local level. 9. Policy Goals. The media ownership rules are designed to foster the Commission's longstanding policies of competition, diversity, and localism. We set these policies out in detail in the 2002 Biennial Review Order,[FN34] and we reaffirm those goals. We address localism more fully in a separate report intended to enhance broadcasters' commitment to serving their local markets.[FN35] In addition, in the Diversity Order, we adopt a number of measures to enhance diversity by promoting entry of small businesses, including those owned by women and minorities,[FN36] and invite comment on other proposals to promote those goals. 10. Section 202(h) Analysis. Section 202(h) of the Telecommunications Act of 1996 requires the Commission to review quadrennially[FN37] its broadcast ownership rules to determine whether any of such rules are necessary in the public interest as a result of competition.[FN38] The statute further requires the Commission to repeal or modify any regulation it determines to be no longer in the public interest.[FN39] In Prometheus, the Third Circuit concluded that necessary in the public interest is a plain public interest standard under which necessary means convenient, useful, or helpful, not essential or indispensable.'[FN40] It further concluded that the second sentence of Section 202(h) requires the Commission to repeal or modify any regulations that it has 178

determined do not satisfy the standard set forth in the first sentence.[FN41] 11. Moreover, the court explicitly rejected the argument that Section 202(h) is a oneway ratchet that the Commission may use only to eliminate existing regulations, reasoning that this construction ignores the word modify and the requirement that the Commission act in the public interest.[FN42] Thus, the court rejected contentions that Section 202(h) imposes rigid limits on the Commission's ability to regulate in the public interest[FN43] and instead held that the statute requires only that the Commission monitor the effect of ... competition ... and make appropriate adjustments' to its regulations.[FN44] In sum, Section 202(h) requires us to periodically examine these rules, and repeal or modify them if they do not remain useful in the public interest.[FN45] In this Order, we examine each of these rules in turn. 12. Severability. Although all of the ownership rules that we review in this Order are designed to further diversity, competition and/or localism, each serves a particular function in the media marketplace independently of the others. Therefore, it is our intent that each of those rules shall be severable. If any of the rules is declared invalid or unenforceable for any reason, it is our intent that the remaining rules shall remain in full force and effect.[FN46] [] . . . VI. LOCAL RADIO OWNERSHIP RULE 110. For the reasons discussed below, we conclude that the current local radio ownership rule, including the market definition as revised in the 2002 Biennial Review Order, remains necessary in the public interest to protect competition in local radio markets. As directed by the Prometheus court, we also provide a reasoned justification for our decision to retain the existing numerical limits on local radio ownership. In addition, we deny or dismiss a number of pending petitions for reconsideration of the Commission's action concerning the local radio ownership rule in the 2002 Biennial Review Order. Accordingly, an entity may own, operate, or control (1) up to eight commercial radio stations, not more than five of which are in the same service ( i.e., AM or FM), in a radio market with 45 or more full-power, commercial and noncommercial radio stations; (2) up to seven commercial radio stations, not more than four of which are in the same service, in a radio market with between 30 and 44 (inclusive) full-power, commercial and noncommercial radio stations; (3) up to six commercial radio stations, not more than four of which are in the same service, in a radio market with between 15 and 29 (inclusive) full-power, commercial and noncommercial radio stations; and (4) up to five commercial radio stations, not more than three of which are in the same service, in a radio market with 14 or fewer full-power, commercial and noncommercial radio stations, except that an entity may not own, operate, or control more than 50 percent of the stations in such a market.[FN357] A. Background

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111. In the 2002 Biennial Review Order, the Commission retained the local radio numerical limits and the AM/FM service caps that Congress adopted in the 1996 Act.[FN358] The Commission determined, however, that its contour-overlap methodology for defining radio markets and counting stations in the market was flawed as a means to protect competition in local radio markets.[FN359] The Commission therefore modified the definition of a local radio market by replacing the contour-overlap approach with an Arbitron Metro market definition where Arbitron markets exist.[FN360] In addition, the Commission decided to include noncommercial stations when determining the number of radio stations in a market for purposes of the ownership rules.[FN361] The Commission also decided to attribute certain radio station Joint Sales Agreements (JSA) toward the brokering licensee's permissible ownership totals.[FN362] Recognizing that there could be some existing combinations of broadcast stations that would exceed the revised ownership limits, the Commission grandfathered existing combinations of radio stations and of radio and television stations.[FN363] 112. The Prometheus court upheld the Commission's decision to define the market using Arbitron Metros, to attribute JSAs, to count noncommercial stations in defining the size of a market and to impose restrictions on the transfer of grandfathered combinations.[FN364] Although the Prometheus court affirmed the Commission's rationale that numerical limits help guard against consolidation and foster opportunities for new entrants and therefore upheld the use of numerical limits, the court remanded the Commission's decision to retain the existing numerical limits. The court held that the limits were unsupported by the Commission's rationale that they ensure five equal-sized competitors in most markets.[FN365] The court held that the Commission had failed to justify five as the appropriate benchmark and did not reconcile that benchmark with the DOJ/FTC Merger Guidelines it had used to derive the local television ownership limits. The court also stated that the Commission had failed to show that the limits ensured that five equal-sized competitors have emerged or would emerge under the numerical limits.[FN366] The court further faulted the Commission for not explaining why it could not take actual market share into account when deriving the numerical limits. Finally, the court held that the Commission did not support its decision to retain the AM subcaps.[FN367] B. Discussion 113. Under Section 202(h), we consider whether the local radio ownership rule continues to be necessary in the public interest as a result of competition. In determining whether the rule meets that standard, we consider whether the rule serves the public interest, which, in radio broadcasting, traditionally has encompassed competition, localism, and diversity.[FN368] For the reasons discussed below, we conclude that the current rule meets that standard. We also conclude that it is appropriate to maintain the current numerical limits on local radio ownership based on our examination of the record before us. 114. Competition. As an initial matter, we reaffirm our finding in the 2002 Biennial

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Review Order that the relevant geographic market for purposes of our local radio ownership rule is the Arbitron Metro market. We also reaffirm our conclusions in the 2002 Biennial Review Order that radio broadcasters operate in three relevant product markets: radio advertising, radio listening, and radio program production.[FN369] Contrary to the arguments of several commenters, there continues to be a lack of persuasive evidence that various entertainment alternatives ( e.g., reading and watching television) are good substitutes for listening to radio.[FN370] 115. Having discussed the relevant product and geographic markets for radio, we now undertake our obligation under Section 202(h) to determine whether the current limits on radio station ownership are necessary to promote the public interest in competition. We conclude that the current rule meets that standard. 116. We reaffirm our conclusion in the 2002 Biennial Review Order that the ownership tiers in the current rule represent a reasonable means for promoting the public interest as it relates to competition, and that numerical limits on radio station ownership help to keep the available radio spectrum from becoming locked up in the hands of one or a few owners, thus helping to prevent the formation of market power in local radio markets.[FN371] 117. We also conclude that retention of the existing numerical limits in the local radio ownership rule is necessary in the public interest. In so concluding, we depart from the Commission's rationale in the 2002 Biennial Review Order that the existing limits are appropriate because they allow for roughly five equal-sized firms in each market.[FN372] Instead, we rest our decision on our conclusion that relaxing the rule to permit greater consolidation would be inconsistent with the Commission's public interest objectives of ensuring that the benefits of competition and diversity are realized in local radio markets. Making the numerical limits more restrictive would be inconsistent with Congress' decision to relax the local radio ownership limits in the 1996 Telecommunications Act and would disserve the public interest by unduly disrupting the radio broadcasting industry. Based on our examination of the record, we are persuaded that the current numerical limits strike the appropriate balance. 118. The evidence in the record indicates that retaining the numerical limits at the current level is necessary to protect against excessive market concentration. Prior to 1992, our radio ownership rules prohibited most radio mergers.[FN373] In 1992, we relaxed our local radio ownership rules in recognition of the fact that our rules prevented some firms from achieving the economies of scale that they needed to survive financially.[FN374] Congress further relaxed the local radio ownership limits in the 1996 Telecommunications Act.[FN375] Congress's 1996 radio ownership rules revisions have had a substantial effect on the market structure of radio broadcasting, resulting in further consolidation of radio station ownership at both the national and the local level.[FN376] By maintaining the current numerical limits, we seek to guard against additional consolidation of the strongest stations in a market in the hands of too few owners and to ensure a market 181

structure that fosters opportunities for new entry into radio broadcasting. The number of commercial radio station owners declined by 39 percent between 1996 and 2007, with most of the decline occurring during the first few years after the 1996 Act.[FN377] Although the average number of commercial owners across all Arbitron radio markets currently is 9.4, the largest commercial firm in each Arbitron Metro market has, on average, 46 percent of the market's total radio advertising revenue, and the largest two firms have 74 percent of the revenue.[FN378] In 111 of the 299 Arbitron Metro markets, the top two commercial station owners control at least 80 percent of radio advertising revenue.[FN379] The top four commercial firms also dominate audience share.[FN380] And evidence in the record indicates that the increase in concentration in commercial radio markets has resulted in appreciable, albeit small, increases in advertising rates.[FN381] All of this data in the record supports the conclusion that the current numerical limits are not unduly restrictive and that additional consolidation would not serve the Commission's competitive goals.[FN382] 119. We also conclude that making the numerical limits more restrictive is not justified based on examination of the current record.[FN383] Prior to 1992, the local radio ownership rules did not effectively recognize that a certain level of consolidation can be efficient. Given the generally difficult economic conditions at the time, the inability of stations to seek efficiencies through consolidation may have contributed to the industry's financial difficulties. We do not seek to undermine the benefits that consolidation has brought to the financial stability of the radio industry.[FN384] 120. In addition, further tightening of the local radio ownership rule would disrupt the marketplace by necessitating widespread divestitures. In this regard, the Future of Music Coalition cites data showing that at least one radio station owner was at the ownership cap in 194 of 297 Arbitron Metro markets.[FN385] Requiring widespread divestitures would undermine settled expectations in a market where broadcasters needed regulatory relief to achieve the economies of scale necessary to compete just 10 years ago.[FN386] Many broadcasters incurred significant financial risks by acquiring the additional stations permitted under this rule and are creating business development plans for the future based on these current economies of scale. Decreasing the limit would thus be a significant shock to the market.[FN387] Moreover, it could undermine efficiency gains that such firms otherwise might realize from their current economies of scale, efficiency gains that could bolster the stations' financial standing and increase their ability to provide their local communities with quality programming. We should not cause such a disruption absent persuasive evidence that further tightening of the local radio ownership rule would serve the public interest more effectively than the current rule. 121. Of course, we recognize that the need for widespread divestitures could be avoided by grandfathering existing station combinations, as the Commission chose to do in the 2002 Biennial Review Order. Again, however, doing so here would involve negative policy consequences that must be avoided if possible. Grandfathering existing combinations would exacerbate competitive imbalances enjoyed by current group owners 182

-- those that assembled combinations under the current rules -- and would disfavor those that cannot assemble competing combinations because of new ownership restrictions. In other words, grandfathering would lock in the competitive advantage of the largest group owners and permanently disadvantage those who have not yet consolidated. Although the Commission previously chose to grandfather existing station combinations based on countervailing considerations,[FN388] we find that doing so now is not in the public interest. 122. Furthermore, we cannot conclude that tinkering with the existing numerical limits is warranted merely to rationalize the specific numerical limits that Congress chose in 1996 in light of the strong countervailing considerations set forth above. Congress adopted the existing limits in 1996, and mandated that the Commission periodically examine whether they remain necessary in the public interest. The Prometheus court rejected the Commission's attempt to rationalize the limits that Congress chose based on game theory and the DOJ/FTC Horizontal Merger Guidelines. Had the Commission initially established its own numerical limits, of course, it might have chosen different tiers and/or different caps. Nevertheless, we believe that it would be inconsistent with the public interest, as well as with the deference that we owe to Congress's line-drawing, to modify those limits merely to suit a new rationale, given the negative policy consequences associated with such tinkering. Instead, we believe that retaining the current numerical limits strikes the appropriate balance between protecting competition in local radio markets and enabling radio owners to achieve efficiencies through consolidation of facilities.[FN389] 123. We also find that the AM/FM subcaps are relevant to our consideration of competition issues, as well as our overall public interest goals in considering our media ownership rules. Thus, we explain our decision to retain the AM/FM subcaps below.[FN390] 124. Localism. Our localism goal stems from our mandate to ensure that licensed broadcast facilities serve and are responsive to the needs and interests of the communities to which they are licensed. By preserving a healthy, competitive local radio market, the local radio ownership rule helps promote our interest in localism. Aside from the positive effect on localism that ensues from a competitive radio market, however, the Commission has never found that the local radio ownership rule significantly advances our interest in localism.[FN391] 125. Although some parties suggest that localism has suffered as a result of consolidation, others forcefully argue that consolidation has benefited localism by giving group owners more resources to provide local news and public interest programming and to undertake initiatives responsive to the local needs and interests of the communities that they serve.[FN392] For example, some critics of consolidation cite to a Future of Music Coalition Study, which contends that consolidation permitted under our rule reduces opportunities to air music from local artists.[FN393] In addition, these commenters refute 183

studies showing that large radio groups air a greater number of local programs.[FN394] Some commenters point to specific examples of alleged failures by a large national radio owner to provide vital public emergency programming as evidence of the harm to localism caused by consolidation.[FN395] In contrast, NAB argues that the record establishes that station groups are rolling out more news and talk stations and are otherwise providing substantial service to their local listeners; thus, NAB concludes that common ownership provides affirmative benefits to the public by increasing listening choices and enhancing local service.[FN396] 126. Based on our examination of the record, the evidence does not show that consolidation in local markets has harmed localism. Media Ownership Study 4.2 finds that the existence of economies of scope in production and distribution is supported by the findings that stations owned by parents that have more pervasive radio operations are more likely to air informational programming. The Study also provides some evidence that stations with nearby owners air more news and more local news.[FN397] We also note that the parties who criticize the effect of consolidation on localism often focus on the overall national size of the radio station group owner rather than the number of radio stations commonly owned in a local market. For example, several commenters criticize the practice of airing national music playlists by large national radio station groups.[FN398] As we noted in the 2002 Biennial Review Order, however, this criticism seems to focus more on Congress's decision to eliminate the national radio ownership cap, which we are not reviewing in this proceeding.[FN399] In any event, these concerns do not address whether consolidation of radio stations in a local market harms localism.[FN400] 127. Diversity. Although media other than radio play an important role in the dissemination of local news and public affairs information, the Commission previously has concluded that its competition-based limits on local radio ownership promote diversity by ensuring a sufficient number of independent radio voices and by preserving a market structure that facilitates and encourages new entry into the local media market.[FN401] The Commission has declined to rely on format diversity to justify the local radio ownership rule.[FN402] 128. Though commenters hold various opinions on this issue,[FN403] our recent studies show that common ownership allowable under our tiers is not associated with reductions in format or programming diversity. Media Ownership Study 5 finds that consolidation of radio ownership does not diminish the diversity of local format offerings.[FN404] Similarly, the results of Media Ownership Study 10 show that the variety of radio formats available to consumers has held steady.[FN405] Peer review finds that Media Ownership Study 5 provides an exhaustive analysis of the data using different measures of programming and ways of treating the data ( e.g., looking at programming using market level averages or using observations on each station). Moreover, the review showed that the study's results were easy to replicate due to the simplicity of the study's econometric analyses and the transparency of the explanation of the specifications.[FN406] Peer review of Media Ownership Study 10 found that the discussion of the descriptive statistics relied on 184

established techniques and theoretical concepts and that the interpretation of the financial indicator trends was sensible and consistent with professional standards. The review also showed that the count of formats statistic was a simple yet plausible measure of format diversity, and that the data sources used for the study were generally viewed as reliable.[FN407] Some commenters disagree with the results of these studies. For example, Professor Byerly and Professor Arnold contend that Media Ownership Study 5 shows a paucity of news programming compared to advertising airtime and conclude that stations are not fulfilling their public service obligation.[FN408] UCC asserts that the studies demonstrate that the consolidation that has occurred in the radio industry since the rule was relaxed in 1996 has significantly reduced the number of independently owned outlets, which the Commission has found to be the best proxy for measuring diversity.[FN409] However, based on our examination of the record, and in light of the fact that peer review confirms the validity of our studies, which show that our radio ownership limits do not decrease format diversity, we are not persuaded that common ownership allowable under our tiers is associated with reductions in format or programming diversity. 129. Based on our examination of the record, we cannot conclude that the local radio ownership rule is necessary to protect format diversity. Nevertheless, we find that retaining the current, competition-based numerical limits on local radio ownership will promote diversity indirectly for the same reasons that the Commission pointed to in the 2002 Biennial Review Order. Thus, it is proper for us to retain the status quo, as the ownership tiers serve the public interest in light of competition. 4. Notes and Questions

Over the past few years, several bills have been introduced in Congress that would have provided full performance rights to sound recordings. Do you think that such a law should be passed? Why or why not? What are the strongest justifications for treating sound recordings and musical compositions differently for purposes of the bundles of rights that attach to each? What are the strongest arguments for treating the same? Given the changes in the radio industry over the past two decades, what do you think the impact, if any, would be on radio ownership if full performance rights were to be granted to sound recordings? Do you think that consolidation in the radio industry should concern musicians in light of the array of promotional opportunities available outside of traditional broadcast radio? Where do you find new music?

End of Volume I of Materials (Vol. II is printed separately)

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