Petition — Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.

Supreme Court brief1979

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No.

@7-:.578

BROADCAST MUSIC, INC., et al.,

Petitioners,

COLUMBIA BROADCASTING SYSTEM, INC., et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

AMALYA L. KEARSE

GEORGE A. DAVIDSON

One Wall Street

New York, New York 10005

(212) 943-6500

Attorneys for Petitioners

Of Counsel:

CONLEY E. BRIAN, JR.

HUGHES HUBBARD & REED

One Wall Street

New York, New York LOOOS

TABLE OF CONTENTS

I TID ci tieiiciniietscienttinsstavatinicetiniirhinccsitinntesitiins

STATUTORY PROVISIONS INVOLVED ..................---cccccceossceeesee

REIS GIP GE GI evncecnicsnscctenscniteenietatsitnersnsrettataciit

TL RE RNC A SENET ee See

BMI Agreements with Writers and Publishers ....

BMI Blanket Licenses

Blanket Licensing and the Music Business

Prior Proceedings

Reasons FOR GRANTING THE WRIT ....................................

I. Tae Seconp Crrecurtr’s Price Fixrmyve Rationate

Has No Appuication to BMI anp THE THOVSANDS

or WRITERS AND PUBLISHERS WHosE WorkKs ARE

I yD a a Ae

II. Tue Seconp Crrecvurt’s Decision Seriousty Dis-

TORTS THE Roue or Per Se Rwt Es ..........................

Ill. Tse Seconp Crrcurr Has Createp a WHOLLY

INEQUITABLE DoctrRINE oF CopyriGHt Misuse

eae ee

PAGE

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oun

TABLE OF AUTHORITIES

PAGE

Cases:

Alfred Bell & Co. v. Catalda Fine Arts, Inc., 191 F.2d

Tt tS) 23n

Appalachian Coals, Inc. vy. United States, 288 U.S. 344

( 18

Arizona v. Cook Paint & Varnish Co., 391 F. Supp.

962 (D.Ariz. 1975), aff'd, 541 F.2d 226 (9th Cir.

1976), cert. denied, 430 U.S. 915 (1977) -........-..-.-.---- 18n

Buck v. Cecere, 45 F. Supp. 441 (W.D.N.Y. 1942) -..... 23n

Cement Manufacturers Protective Association Vv.

United States, 268 U.S. 588 (1925) .....................--.--+- 18n

Chicago Board of Trade v. United States, 246 U.S. 231

cc dees tabinepansbiinaaiaiionnanninn 19

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S.

SU IIE TT lsc cstticcadhcninlithaeles inedsaniididieptiadseopasttianiingaspbanical 16, 17n

Cullum Electric & Mechanical, Inc. v. Mechanical Con-

tractors Association, 436 F. Supp. 418 (D.S.C.

1976), aff'd, 569 F.2d 821 (4th Cir. 1978) 2.20022... 18n

DuPont Glore Forgan Inc. v. American Telephone &

Telegraph Co., 437 F. Supp. 1104 (S.D.N.Y. 1977),

aff'd, No. 77-6154 (2d Cir. March 17, 1978) ~............ 18n

Eastern Scientific Co. v. Wild Heerbrugg Instruments,

Inc., [Current] 5 Trade Reg. Rep. (CCH) (1978-1

Trade Cases) § 61,926 (1st Cir. March 17, 1978) ... 19n

Evans vy. S. 8S. Kresge Co., 544 F.2d 1184 (3d Cir.

1976), cert. denied, 433 U.S. 908 (1977) 17n, 19n

eet ee eee eee

Harms, Inc. v. Sansom House Enterprises, 162

F. Supp. 129 (E.D.Pa. 1958), aff'd per curiam sub

nom. Leo Feist, Inc. v. Lew Tendler Tavern, Inc..,

ee Fe Lt anne 23n

International Manufacturing Co. v. Landon, Inc., 336

F.2d 723 (9th Cir. 1964), cert. denied, 379 U.S. 988

STUEIEDT saasiaedicetepiniabentebsstenniddasteeishtelinidebasthabisediddaetapnisdebiokanedeiies 19n

ili

PAGE

Jacobi v. Bache & Co., 377 F. Supp. 86 (S.D.N.Y.

1974), aff'd, 520 F.2d 1231 (2d Cir. 1975), cert.

EE, Ge ei: BERIEEE ITI ecieneicsncertivernntctatentiecnincnticenns 18n

K-91, Inc. v. Gershwin Publishing Corp., 372 F.2d 1

(9th Cir. 1967), cert. denied, 389 U.S. 1045 (1968) ....12, 13

Mackey vy. National Football League, 543 F.2d 606

(Sth Cir. 1976), cert. dismissed pursuant to Rule 60,

I i i a 17n, 20

Maple Flooring Manufacturers Association vy. United

eR 8 eee 18n

Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488

SURED -<ciansenpisieesitehcaseitandediathdisdichdsbshddesiigabliantainnibtaneiinininostisi 22, 23n

M. Witmark & Sons vy. Jensen, 80 F. Supp. 843

(D.Minn. 1948), appeal dismissed per curiam sub

nom. M. Witmark & Sons v. Berger Amusement Co.,

oe BF Ri De SR ee 23n

National Society of Professional Engineers v. United

States, 46 U.S.L.W. 4356 (U.S. April 25, 1978) (No.

TT REN Rae! REO ee Se aa 16

Northern Pacific Railway Co. v. United States, 356

BENG Ws IIIT inssisseensctilinbcetticinntdeyndelsshouncindiiiahdaeminienstia 12, 16, 17

Sam Fox Publishing Co. v. United States, 366 U.S. 683

EP RAR Senet RON arsonist ne 13

Silver vy. New York Stock Exchange, 373 U.S. 341

II elie eee ee a Se Ae 13n, 17n

Standard Oil Co. (Indiana) v. United States, 283 U.S.

BRR aS ESE SSPE OU RE Se ON 18, 19

Sugar Institute, Inc. v. United States, 297 U.S. 553

SUTIN -srsesissniicliehetitedbiabienticainebnbeliciinkapeictipele ti ast ats 18n

United States v. Citizens & Southern National Bank,

ge SE Ee ere en mee 17n, 18n

United States v. Columbia Pictures Corp., 189

SS Rf 8 ae ee 19n

United States v. Container Corp. of America, 393 U.S.

ee IID ciclatshasicsicie dccdeppesenttebinittmsessnahdepiiieitubceneenintssioasine 18n

PAGE

United States v. Jerrold Electronics Corp., 187

F. Supp. 545 (E.D.Pa. 1960), aff’d per curiam, 365

is OE ) |) ee ee ae 17n

United States v. Morgan, 118 F. Supp. 621 (S.D.N.Y.

WOE) cceanssusssstsineciitnindeenninaaestiaeaiiainaiiaaiinaieeaaiaeiasaiia 19n

United States v. Nu-Phonics, Inc., 433 F. Supp. 1006

CHRD Diets, BOG T) cncscvsssinssivcnivsnshicitaniipiiamntainiiineslelitidaainios 18n

United States v. Socony-Vacuum Oil Co., 310 U.S. 150

CTD <ccnsaiecscovcvsussisesnnsieesiscntiiesibbnisinsinitammamnaiad manila 18, 20

White Motor Co. v. United States, 372 U.S. 253 (1963) 17

Statutes:

BB UR. 92 CRD ccnceessessimasiesieneiiasinenitannaiiids 4,12

BB WG. SEE CIGD ccnitisivnsssniiatbaneiinatan 4, 9n

BT UG, 9 ERR Ce ccusncinnetdeniaed Sn

AT UBD. 9 ERG CHD canjacsininendan 7n

a8 UBS. 9 RSROTED Clee. ccctenscedectsesenecencun 2

38 UBS. 9 BREE) GRGee sninionntceidens 9n

SS UB. 9 TRG CHGGEP ccinsitnsiotitaesaal 9n

28 U.S.C. § 1338(a) (Supp. V 1976) -......000000... 9n

Cther Authorities:

Case Comment, 91 Harv. L. Rev. 488 (1977) ............ 11n, 20n

Fine, “Misuse and Antitrust Defenses to Copyright

Infringement Actions,” 17 Hastings L.J. 315 (1965) 23n

Gibbs, “Copyright Misuse: Thirty Years Waiting for

the Other Shoe,” 23 ASCAP Copyright L. Symp. 31

CEDTT) «.cxncsrsorrsccssetiesatinnesiniauieaneeseiaeiiasiaaailiaaiiiaanannnannn 23n

H. R. Rep. No. 94-1476, 94th Cong., 2d Sess. (1976)... 8n

Nicoson, “Misuse of the Misuse Doctrine in Infringe-

ment Suits,” 9 U.C.L.A. L. Rev. 76 (1962) 2000000. 23n

Note, “The Misuse Defense in Copyright Actions,” 37

Bee E Ue Ee, BOUU. GOB CIGD cncctssctanandteeesene 23n

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No.

OO EE

BROADCAST MUSIC, INC., et al.,

Petitioners,

COLUMBIA BROADCASTING SYSTEM, IY©., et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Broadeast Music, Ine. (“BMI”) and the named repre-

sentatives of the defendant class of writers and publishers

of music who have entered into agreements with BMI to

license performance rights to their works! respectfully peti-

tion for a writ of certiorari to review so much of the judg-

ment of the United States Court of Appeals for the Second

Cireuit, entered in this case on August 8, 1977, as reversed

the decision of the district court granting judgment to

defendants.

1. Paul Anka, Jerry Bock, Fred Ebb, Norman Gimbel, Sheldon

Harnick, John Kander, Charles Koppelman, Don Rubin, Joseph

Stein, Al Gallico Music Corp., Associated Music Publishers, Inc.,

Duchess Music Corp., Edward B. Marks Music Corp., Hill and

Range Scngs, Inc., Hollis Music, Inc., Maclen Music, Inc., Peer

International Corp., Screen Gems-Columbia Music, Inc., Sunbeam

Music, Inc. and Unart Music Corp.

OPINIONS BELOW

The majority and separate opinions of the court of

appeals are reported at 562 F.2d 130. Upon the denial of

petitions for rehearing Judge Moore issued an opinion

which is unreported. The opinion of the district court dis-

missing the complaint after a full trial on the liability issues

is reported at 400 F. Supp. 737. These opinions are

reprinted in a separate Appendix to this Petition.

JURISDICTION |

The judgment of the court of appeals was entered on

August 8, 1977. A timely petition for rehearing and sug-

gestion for rehearing in bane was denied on December 6,

1977. On February 17, 1978, Mr. Justice Marshall extended

the time to file this petition until May 5, 1978. This Court

has jurisdiction to review the judgment of the court of

appeals by writ of certiorari pursuant to 28 U.S.C.

§ 1254(1).

QUESTIONS PRESENTED

BMI, a corporation which is not owned or operated by

writers or publishers, is a middleman in the business of

licensing copyrighted musical compositions for publie per-

formance. BMI has entered into agreements with thou-

sands of writers and publishers of music giving BMI rights

to grant public performance licenses to their compositions.

Thousands of users of music have negotiated with BMI for

“blanket” licenses under which they obtain the right to use

all the compositions in the BMI repertory in return for a

flat fee or a percentage of designated receipts. A user is

free to obtain licenses to perform music in the BMI reper-

tory directly from writers and publishers and need not

obtain licenses from BMI.

The Second Cireuit held that the offering of blanket

licenses constituted price fixing and copyright misuse. The

questions presented by the Second Circuit’s decision as to

these petitioners are:

1. Whether writers and publishers of music and

the indep-ndent middleman through which they have

licensed their copyrighted musical compositions for

public performance can be found to have engaged in

price fixing in violation of the Sherman Act in the

absence of any agreement between the middleman

and the writers and publishers as to the price that

any licensee would be charged?

2. Whether it is per se illegal to offer blanket

licenses to perform large numbers of musical com-

positions, when consent decrees negotiated by the

Department of Justice require that such licenses be

offered, and when such licenses have been found to

avoid the practical problems of composers in moni-

toring the fleeting and scattered uses of their works

and the difficulties of users in locating and negotia-

ting with the numerous and widely dispersed creators

of the works they wish to use?

3. Whether it is copyright misuse for some fifty

thousand writers and publishers to enter into agree-

ments with an independent middleman who in turn

grants blanket licenses for the publie performance of

their compositions, where the copyright owners are

also prepared to grant individual licenses directly to

any user electing not to take a blanket license, and

where blanket licenses are found to constitute a

reasonable solution to the unique distribution and

supply problems in the business of performance

rights licensing?

STATUTORY PROVISIONS INVOLVED

Section 1 of the Sherman Act, 15 U.S.C. § 1, provides, in

pertinent part:

“Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or

commerce among the several States, or with foreign

nations, is declared to be illegal... .”

Section 16 of the Clayton Act, 15 U.S.C. § 26, provides, in

pertinent part:

“Any person, firm, corporation, or association

shall be entitled to sue for and have injunctive relief,

in any court of the United States having jurisdiction

over the parties, against threatened loss or damage

by a violation of the antitrust laws... .”

STATEMENT OF THE CASE

The Parties

Petitioner BMI, a defendant below, is a corporation

founded in 1939.2 BMI has negotiated agreements with

many thousands of writers and publishers of music to

license their music and currently has such agreements with

more than 33,000 writers and more than 16,000 publishing

companies (hereinafter sometimes referred to as BMI

“affiliates”). Certain of these writers and publishers were

named in the complaint as representatives of the defendant

class of BMI affiliates and are also petitioners herein.

2. BMI’s stock is owned by approximately 485 local broadcasters.

(A.2a, 27a; references to“A. ” are to pages of the separate Appen-

dix to this Petition.)

American Society of Composers, Authors and Publishers

(“ASCAP”), a defendant helow, is a membership organiza-

tion of writers and publishers of music which was founded

in 1914. (A.2Q5a-27a.) Certain ASCAP members were

named in the complaint as representatives of the defendant

class of ASCAP members. ASCAP and these ASCAP

members are filing a separate petition for review of the

judgment below.

Respondent Columbia Broadeasting System, Ine.

(“CBS”), the plaintiff below, operates one of the three

national television networks. CBS supplies programs to

some 200 affiliated television stations and to its five wholly-

owned television stations. A giant in the entertainment in-

dustry, CBS also owns and operates fourteen radio sta-

tions, one of the four national radio networks, the world’s

largest record company, and several music publishing com-

panies which either are members of ASC AP or have agree-

ments with BMT. (A.27a-28a, 58a-59a, 90a, 93a.)

BMI Agreements with Writers and Publishers

Each of the agreements BMI has negotiated with writers

and publishers gives BMI a right to issue licenses to per-

form the copyrighted works of the writer or publisher. In

return, BMI has agreed to make license payments to each

affiliate as calculated under formulae established from time

to time by BMI!

Under the terms of the consent decree entered in United

States vy. Broadcast Music, Inc., 64 Civ. 3787 (S.D.N.Y.

December 29, 1966) (the “BMI Decree”), BMI must also

permit writers and publishers to issue performance licenses

3. Allof BMI’s income, after expenses and provision for reserves,

is paid out to its writer and publisher affiliates. (A.27a.)

directly to users.‘ The court of appeals affirmed the dis-

trict court’s finding that BMI’s affiliates can, and would if

CBS asked, negotiate and issue performance licenses

directly to CBS. (A.8a-10a, 111a-120a.)

BMI Blanket Licenses

A blanket license from BMT gives the licensee the right

to perform any of the more than one million compositions

in the BMI repertory, without advance notice and any num-

ber of times during the term of the license, in return for a

flat dollar amount or a fee expressed as a percentage of

designated receipts. (A.3a, 6a, 25a-26a.)

The fee charged by BMI for a blanket license is exelu-

sively a matter for negotiation between BMI and music

users. Writers and publishers who agree to permit BMI to

license their works do not participate in BMI’s determina-

tion as to what price BMT will seek from users or in any

other licensing decision. BMT is not a membership organi-

zation of writers and publishers; BMI is owned by its stock-

holders, and writers and publishers play no role in its

management. (A.2a, 27a.)

Blanket Licensing and the Music Business

The market for performance rights to copyrighted music

is a vast and complex one. In this country alone, there are

more than 80,000 writers and publishers of music holding

copyrights on millions of compositions. Obtaining per-

4. ASCAP, as required by its consent decree, obtains only a non-

exclusive right from its members to license their compositions.

(A.6a.) Although the form of the BMI Decree differs from the form

of ASCAP’s decree, as the district court stated, “the parties have

stipulated that CBS could secure direct licenses from BMI affiliates

with the same ease or difficulty . . . as from ASCAP members.”

(A.33a.)

formance rights to these compositions and the works of

foreign composers as well’ is an important part of the

successful operation of a huge entertainment industry made

up of many thousands of separate operations ranging in

size from local bars to nationwide television networks.

Performing rights organizations have developed through-

out the world in response to the unique problems presented

by the performing rights market. Publie performances of

music are so fleeting, and music users so numerous and

widely scattered, that no individual copyright holder could

hope to detect and collect for all unauthorized uses of his

work. On the other hand, most musie users desiring both

to perform a variety of musie and to avoid copyright

infringement would face severe practical difficulties in

obtaining direct licenses to the works they wished to per-

form. Freedom of choice in the selection of musie might

he achieved, if at all, only at great expense if it were neces-

sary to identify and contact the copyright owners each time

a particular work was selected for performance.

Blanket licensing of performance rights by organiza-

tious such as ASCAP and BMT arose in response to these

market needs, and it continues to serve these salutary pur-

poses today.® (A.25a-26a.) As the district court stated:

5. BMI and ASCAP have reciprocal licensing arrangements with

organizations from nearly 40 countries, including every major country

in the world except China. The world-wide adverse effect of the

Second Circuit’s opinion is discussed in an amicus curiae brief to be

filed herein by The Performing Right Society Limited and Soci<té

des Auteurs, Compositeurs et Editeurs de Musique, the Pritish and

French performing rights organizations.

6. Congress has given express statutory recognition to the role

of the performing rights organizations in the Copyright Act of 1976,

which became effective on January 1, 1978. In 17 U.S.C. § 116, the

section of the Act providing for compulsory licenses for jukeboxes,

the Copyright Royalty Tribunal is directed to distribute all jukebox

(footnote continued on next page)

“Convenience is the prime virtue of the blanket

license: it provides comprehensive protection against

infringement, that is, access to a large pool of music

without the need for the thousands of individual

licenses which otherwise would be necessary .. . .

Moreover, it gives the user unlimited flexibility in

planning programs, because any musie¢ it chooses is

: 4 ss

‘automatically’ covered by the blanket license.

(A.26a.)

By acquiring rights to license performance rights from

numerous copyright owners and offering these rights for

sale, in bulk, to musie users, BMI acts as an ordinary mid-

dleman. BML[ provides both to the writers and publishers

and to those who desire to use their music an alternative

method of distribution and supply which enables them to

avoid the prohibitive transaction costs—measured both in

money and in quality of product—that direct negotiation

would so often entail.

For virtually its entire existence, BMI’s operations have

been regulated by consent decrees negotiated with the De-

partment of Justice. ASCAP’s operations have been subject

to consent decree since 1941, The decrees now in effect

have for many vears required both BMI and ASCAP to

offer blanket licenses. (A.4a-7a, 29a-33a.)

royalty fees to which copyright owners unaffiliated with a performing

rights organization do not prove entitlement, to the performing rights

organizations; BMI, ASCAP and SESAC, Inc. are mentioned by

name.

In 17 U.S.C. $111, Congress established government-sponsored

blanket licensing for certain secondary transmissions of cable tele-

vision systems, with fees based on each system’s gross receipts. The

House Report on the bill indicates that blanket licensing was chosen

because

“it would be impractical and unduly burdensome to require

every cable system to negotiate with every copyright owner

whose work was retransmitted by a cable system.” H.R. Rep.

No. 94-1476, 94th Cong., 2d Sess. 89 (1976).

Prior Proceedings

CBS has held blanket licenses since commercial television

began. Indeed, CBS led the group of broadeasters which

founded BMI in 1939 and caused it to issue its first blanket

licenses. (A.2a, 27a-2Sa, 5la.)

On December 31, 1969, following a breakdown in negotia-

tions for the renewal of its BMI blanket license, CBS filed

the complaint in this action, seeking declaratory and injunc-

tive relief.’ (A.52a-54a.) CBS alleged that it had been

compelled to accept blanket licenses (although it was BMI,

not CBS, which had terminated the existing blanket license

and although CBS had never prior to BMI’s notice of ter-

mination objected to a blanket license (A.52a-54a, 79a)),

and argued that the offering of such licenses by BMI and

ASCAP constituted tying, boycotting, price fixing, mono-

polization and misuse in violation of the antitrust and

CBS sought to require BMI to offer a new type of license

in Which BMT would be required to fix a price level for each

type of use of a composition in its repertory. Alternatively,

CBS requested an order enjoining BMI from offering blan-

ket licenses to any of the television networks. (A.3a, 25a,

38a.)

Tn 1973, following extensive discovery, a twenty-nine day

trial on issues of liability was held before Judge Morris FE.

Lasker of the Southern District of New York. Every aspect

of music licensing was examined in depth at the trial.

Upon careful evaluation of the mass of evidence before

him, Judge Lasker held that the offering of blanket licenses

by ASCAP and BMI did not unreasonably restrain trade and

did not otherwise violate the antitrust or copyright laws.

7. CBS invoked the jurisdiction of the district court under 15

U.S.C. § 26 and 28 U.S.C. §$§ 1331(a), 1337 and 1338(a).

(A.114a-'2la.) The district court found that most music

used on ( BS’ television network was composed especially

for the program on which it is performed and that, as to

other music, composers and publishers were eager to have

it performed on nationwide television. (A.56a-61a, 69a-71a,

S4a-Sda, 90a-9la, 1l2a.) The court concluded that copy-

right proprietors “would deal readily on a price basis... .”

(A.120a.) Accordingly, since the offering of blanket li-

censes was found not to obstruct CBS’ acquisition of

licenses directly from the copyright owners, the district

court entered judgment in favor of the defendants.

On August 8, 1977, the Second Circuit reversed the dis-

trict court in part. While the court of appeals upheld the

dismissal of most of CBS’ antitrust claims and did not dis-

turb any of the district court’s findings of fact, Judges

Gurfein and Anderson joined in ruling that, “with respect

to the television networks,” the offering of blanket licenses

constituted per se unlawful price fixing. (A.2la.) In addi-

tion, in the last sentence of its final footnote, the court

added, without elaboration, that the offering of blanket 1li-

censes also constituted copyright misuse.’ (A.23a.)

REASONS FOR GRANTING THE WRIT

This petition should be granted because of the significant

impact of the decision below on antitrust theory, on the

creators of music throughout the world, and on government

enforcement of the antitrust laws:

First, with what has been described as a “hasty” applica-

8. Ina rather puzzling concurring opinion, Judge Moore appeared

to disagree that blanket licensing constituted price fixing but agreed

that there should be a remand. (A.23a.)

tion of the per se rule,’ the court held that the practices of

each of the major licensing organizations—ASCAP and

BMI—constituted price fixing, even though the court’s

reascning had no application whatever to BMI. The hold-

ing that BMI is a price fixer would make the ordinary busi-

ness operations of every independent wholesaler or middle-

mac per se unlawful.

Second, the court applied rules of per se illegality with-

out disturbing any of the extensive findings by the district

court that the offering of blanket licenses created no unrea-

sonable restraint. Indeed, the Second Cireuit itself con-

ceeded that the blanket license offered was not a “ ‘naked

restraint.”” (A.22a.)

Third, having precipitately applied a per se rule to a

case that required rule of reason analysis, the court tried

to accommodate the obvious indicia of reasonableness that

permeated the trial record by doing further violence to per

se doctrine: although the offering of blanket licenses was

held per se unlawful, the Second Circuit ruled that blanket

licensing need not be prohibited, but might continue if

ASCAP and BMI were required to offer another form of

license as well. (A.2la-22a.) But if the Second Circuit

were correct that blanket licensing was price fixing and

court would be an even clearer case of price fixing and

misuse,

Fourth, relying on its erroneous price fixing rationale

and giving no attention to copyright policy questions or

equitable cousiderations, the Second Cireuit unjustifiably

held that the copyrights on all compositions available

through BMI or ASCAP have been misused—thus casting a

9. Case Comment, 91 Harv. L. Rev. 488 (1977).

)

cloud on the enforceability in the United States of virtually

every musical copyright in the world. It is reported that

since the Second Circuit’s decision CBS has already ceased

to pay ASCAP for the use of music on CBS’ television net-

work. That alone represents a loss of income to writers

and publishers of more than $4 million per year. If other

users follow suit, the impact will be devastating.

Fifth, the decision of the Second Circuit that the offering

of blanket licenses by BMI and ASCAP constitutes price

fixing is in conflict with the decision of the Ninth Circuit in

K-91, Inc. v. Gershwin Publishing Corp., 372 F.2d 1 (9th

Cir. 1967), cert. denied, 389 U.S. 1045 (1968). In K-91, the

Ninth Cireuit held that ASCAP’s offering of blanket

licenses was not price fixing and did not otherwise violate

Section 1 of the Sherman Act. For the reasons stated in

ASCAP’s petition for certiorari herein, the decisions can-

not be reconciled.

Finally, the Second Cireuit’s decision substantially

reduces the utility of consent decrees when it holds that

conduct affirmatively required by the Department of Justice

in long-standing consent decrees is unlawful per se.’°

Surely there should be a presumption that the Department

of Justice has not required practices which have a

“pernicious effect on competition and lack... any

redeeming virtue....” Northern Pacific Railway

Co. v. United Staies, 356 U.S. 1,5 (1958).

10. The BMI and ASCAP consent decrees permit the offering of

blanket licenses in general and affirmatively require the offering of a

form of blanket license (the per program license) under which pay-

ments are made only with respect to programs using licensed music.

( A.6a-7a, 29a-32a.) At oral argument in the court of appeals, Judge

Gurfein, speaking of the 1950 ASCAP decree, noted,

“It is ordered in the decree to do certain things—that is, to

give a blanket license.” (Tr. 7)

While a private litigant is free to challenge practices au-

thorized by a consent decree, see Sam Fox Publishing Co. v.

United States, 366 U.S. 683 (1961), practices required by a

decree clearly ought to be evaluated under the rule of

reason,'!

The Department of Justice having required the conduct

that was here held per se unlawful, the interests of the

United States are very much involved in the disposition

of this case. Apparently recognizing this, the court of

appeals suggested that the district court invite the Depart-

ment of Justice to participate or express its views on

remand. (A.22a.) Ten years ago this Court, in consider-

ing the petition for certiorari in A-91, Inc. vy. Gershwin

Publishing Corp., supra, invited the Solicitor General to

submit the views of the United States. 389 U.S. 805 (1967).

The Solicitor General filed a brief supporting the conclusion

of the Ninth Cireuit that ASCAP’s offering of blanket

licenses was not price fixing, and this Court allowed the

decision to stand. Onee again the question whether blanket

licensing constitutes price fixing is presented. We respect-

fully suggest that this Court again invite the Solicitor Gen-

eral to express the views of the United States.

11. Cf. Silver v. New York Stock Exch., 373 U.S. 341 (1963),

declining to apply per se rules where practices were undertaken in

context of legislative regulation.

THE SECOND CIRCUIT’S PRICE FIXING RATION-

ALE HAS NO APPLICATION TO BMI AND THE

THOUSANDS OF WRITERS AND PUBLISHERS

WHOSE WORKS ARE LICENSED BY BMI.

The nearly fifty thousand writers and publishers who

license their works to BMI have been branded price fixers

and held guilty of misusing the copyrights on which the

livelihoods of many of them depend—on a theory that has

no application whatever to their conduet.

The Second Cireuit’s price fixing rationale is entirely

dependent on the nature of ASCAP as a membership

organization of writers and publishers.'? The court looked

at the ASCAP organization and saw horizontal agreements

on division of the proceeds of the blanket license. It con-

cluded that such agreements would improperly affect prices

at which direct licensing transactions would oceur, because

“the determination of how much each copyright

owner gets from the coimmon pot is an artificial fix-

ing of the price to that member of the combination

for his composition.” (A.lla: footnote omitted. )

Necessarily, any decision made by ASCAP on dividing fees

is a decision by otherwise competing writers and publishers.

Writers and publishers who license through BMI, how-

ever, are in an entirely different position. They have not

agreed aiong themselves. Each has independently entered

into an agreement with BMI under which BMI has agreed

to make payments to him for his work; these payments bear

no direct relationship to the amount BMI receives from

12. Although BMI’s structure and ownership are entirely different

from ASCAP’s, the court stated in a footnote that references to

ASCAP should be taken to include BMI. (A.2a.)

CBS or any other licensee. Writers and publishers have

no ownership interest in BMI and no control over its pol-

icies. Writers and publishers dealing with BMI have done

no more than enter into agreements with a wholesaler or

middleman interested in licensing their works. And BMI

las negotiated independently with users on the price for

what it licenses.

BML is no more a price fixer than is a wholesaler of eggs

who buys eggs separately from a number of farmers and

sells them together to a supermarket chain. If the super-

market chain did not like the wholesaler’s price, it could hire

a man and a truck to go around to the farmers and make

direct purchases. Doubtless the chain could obtain lower

prices from the farmers than it paid to the wholesaler, but

the direct purchases would make economic sense only if the

price differential were sufficient to pay for the man and the

truck.

As the district court found, CBS is free today to seek

licenses directly from copyright owners, and copyright own-

ers would eagerly grant such licenses. (A.69a-72a, S4a-85a,

W%Wa-91la.) BMI exercises no control over the market; it has

sueceeded in issuing licenses only because users regard the

blanket license as a less expensive alternative than collect-

ing direct licenses with their attendant transaction costs.

(.A.119a-120a. )

To be sure, the price of a BMT license—like anv other

price in a market—has an effect on what would be charged

in direct licensing transactions. The effect, however, is

procompetitive rather than anticompetitive. The blanket

license is an alternative means of securing the desired prod-

ucts—rights to perform copyrighted music. Thus, the price

of a blanket license acts as a check on direct license prices,

since users can select a blanket liccuse if direct license

prices are too high.

In overwhelmingly selecting blanket licenses (A.26a),

users have given clear indication that blanket licenses are

less expensive and more efficient than any other kind of

license. We are aware of no other case which in the name

of antitrust has outlawed a competitive alternative, let

alone the least expensive and most efficient alternative.

THE SECOND CIRCUIT’S DECISION SERIOUSLY

DISTORTS THE ROLE OF PER SE RULES.

This Court has reserved per se rules for only those prac-

tices “whose nature and necessary effect are so plainly

anticompetitive that no elaborate study of the industry is

needed to establish their illegality ....” National Society

of Professional Engineers vy. United States, 46 U.S.L.W.

4356, 4359 (U.S. April 25, 1978) (No. 76-1767). Thus, “per

se rules of illegality are appropriate only when they relate

to conduct that is manifestly anticompetitive.” Continental

T.V., Inc. v. GTE Sylvawia Inc., 483 U.S. 36, 49-50 (1977).

When the conduct is comprised of “agreements whose com-

petitive effect can only be evaluated by analyzing the facts

peculiar to the business, the history of the restraint, and

the reasons why it was imposed,” per se analysis is inap-

propriate. National Society of Professional Engineers v.

United States, supra. The per se concept is designed to

provide predictability and to permit obviously anticompeti-

tive practices to be enjoined without the need for a full-

seale trial. Northern Pacific Railway Co. v. United States,

356 U.S. 1,5 (1958). The court of appeals’ decision is con-

trary to the teaching of this Court and achieves none of the

goals of per se analysis.

The threshold question in determining whether or not to

classify a practice as per se illegal is whether or not the

court has sufficient information about

“the actual impact of these arrangements on com-

petition to decide whether they have such a ‘perni-

cious effect on competition and lack... any redeem-

ing virtue’... .”

White Motor Co. vy. United States, 372 U.S. 253, 263 (1963),

quoting Northern Pacific Railway Co. v. United States,

supra, 356 U.S. at 5.

There was no reason in the present case for the Second

Cireuit to believe that it had the required knowledge as to

the impact of the offering of blanket licenses, since it reeog-

nized that the music licensing industry is “swi generis” and

that “the practical complexities of licensing musical non-

dramatic performing rights can find no precise analogy

anywhere.” (A.3a-4a.) The court, however, accepted

without analysis CBS’ claim that blanket licensing had the

effect of “fixing” the prices that would be asked in direct

licensing transactions, and ruled that blanket licensing is

thus per se unlawful. (A.1la-12a, 13a.) While the court

13. As this Court has recognized, per se rules are general and

inflexible rules which may not lead to appropriate results if applied

to unusual fact situations. See, e.g. Continental T.V., Inc. v. GTE

Sylvania Inc., 433 U.S. 36, 50 0.16 (1977). In a number of cases

presenting unusual fact situations, practices apparently vulnerable if

judged by per se rules have been tested—and sustained—on a rule

of reason basis. Sec, e.g., United States v. Citizens & S. Nat'l Bank,

422 U.S. 86 (1975); Silver v. New York Stock Fxch., 373 US.

341 (1963); Evans v. S.S. Kresge Co., 544 F.2d 1184 (3d Cir.

1976), cert. denied, 433 U.S. 908 (1977); United States v. Jerrold

Elecs. Corp., 187 F. Supp. 545 (E.D. Pa. 1960), aff'd per curiam,

365 U.S. 567 (1961). Cf. Mackey v. National Football Leaque, 543

F.2d 606 (8th Cir. 1976), cert. dismissed pursuant to Rule 60, 98 S.

Ct. 28 (1977) (per se rule held inapplicable ; practice held unlawful

under rule of reason).

had to recognize that there had heen no agreement on direct

license prices, it incorrectly read the language in United

States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221 (1940),

that agreements which “tamper” with price structures are

per se unlawful, as meaning that the per se rule was the

exelusive standard for evaluating price-affecting agree-

ments.

Yet most agreements alleged to affect prices have ordi-

narily been evaluated under the rule of reason.’* For

example, when presented with joint delegation of pricing

decisions to an agency controlled by a group of competitors,

or with an express agreement among competitors as to the

prices at which they would buy or sell during a given part

of the business day, this Court has looked to the purpose,

effect and industry context of such agreements, decided that

they were not “price fixing” agreements, and upheld them

under the rule of reason. See Appalachian Coals, Inc. v.

United States, 288 U.S. 344 (1983); Standard Oil Co. (Indi-

14. See, e.g., United States v. Container Corp. of America, 393

U.S. 333 (1969); Sugar Inst., Inc. v. United States, 297 U.S. 553

(1936); Cement Mfrs. Protective Ass'n v. United States, 268 17S.

588 (1925); Maple Flooring Mfrs. Ass'n v. United States, 268 U.S.

563 (1925). See also United States v. Citizens & S. Nat'l Bank,

422 U.S. 86 (1975).

Several recent lower court decisions have also refused to recognize

a “constructive” price fixing offense such as the Second Circuit created

below. DuPont Glore Forgan Inc. v. American Tel. & Tel. Co.,

437 F. Supp. 1104, 1126-29 (S.D.N.Y. 1977), aff'd, No. 77-6154

(2d Cir. March 17, 1978): United States v. Nu-Phonics, Inc., 433

F. Supp. 1006, 1013 (E.D. Mich. 1977); Cullum Elec. & Mechanical,

Inc. v. Mechanical Contractors Ass'n, 436 F. Supp. 418, 427-28

(D.S.C. 1976). aff'd, 569 F.2d 821 (4th Cir. 1978); Arizona v. Cook

Paint & Varnish Co., 391 F. Supp. 962, 965-67 (D.Ariz. 1975).

aff'd, 541 F.2d 226 (9%h Cir. 1976). cert. denied, 430 U.S. 915

(1977): Jacobi v. Bache & Co.. 377 F. Supp. 86, 95-96 (S.D.NLY.

1974). aff'd, 520 F.2d 1231 (2d Cir. 1975), cert. denied, 423 US.

1053 (1976).

ana) v. United States, 283 U.S. 163 (1931); Chicago Board

of Trade vy. United States, 246 U.S. 231 (1918)."5

In Standard Oil Co. (Indiana) vy. United States, supra,

the Court was confronted with agreements among licensors

of interlocking patents on a price for a l'vense to all of the

patents and on a formula for division of the proceeds. The

Court noted (283 U.S. at 168) that each patent owner

“was to share in some fixed proportion the fees

received under these multiple licenses. The rovalties

to be charged were definitely fixed in the first con-

tract, and minimum sums per barrel. to be divided

between the Texas and Indiana companies, were

specified in the second and third.”

Despite the obvious impact of these agreements on price,

the threshold question whether such agreements should be

judged by per se rules was answered in the negative. The

Court stated that, “Such contracts must be scrutinized to

ascertain whether the restraints imposed are regulations

reasonable under the circumstances ....” Jd. at 169. The

Court then proceeded to find that the agreements did not

violate the antitrust laws because each competitor retained

the right to issue individual licenses. Jd. at 170-71.

Tn view of these precedents, any case involving conduct

alleged merely to affect prices requires a preliminary deter-

15. Several lower court cases have also held that not all price

agreements or competitor sales through joint agents constitute price

fixing. Eastern Scientific Co. v. Wild Heerbruga Instruments, Ine

(Ist Cir. March 17, 1978); Evons v. S.S. Kresge Co., 544 F.2d 1184.

1190-93 (3d Cir. 1976), cert. denied, 433 U.S. 908 (1977): Inter-

national \ffg. Co. v. Landon, Inc., 336 F.2d 723, 729 (9th Cir. 1964),

cert. denied, 379 U.s. 988 (1965): United States v. Columbia

Pictures Corp., 189 F. Supp. 153, 166-68 (S.D.N.Y. 1960): United

States v. Morgan, 118 F. Supp. 621, 688-91 (S.D.N.Y. 1953).

mination as to whether per se treatment is appropriate.

Where the effect on price is not clear or where there are

proper procompetitive purposes for the alleged restraint, a

rule of reason analysis should be applied. Here, both of

these factors were present and ignored by the court of ap-

peals. Adopting an “overly simplistic’ approach, the

court failed to make this threshold determination.

Committed by its erroneous reading of Socony-Vacuum,

supra, to a course of applying a per se rule, the court

ignored every signal indicating that per se analysis was

inappropriate. Neither of the functions of a per se rule

could be served here. The virtue of predictability was

hardly protected by holding per se unlawful practices which

were required by government consent decree and had been

openly engaged in by thousands of writers and publishers

for decades. The result could hardly have been more start-

ling. Nor was predictability advanced by the enunciation

of an “exception” to the per se rule in which the legality of

the practice turns on the “market necessity” of the practice

to the buyer (A.13a-16a), or by the ruling that a practice

held per se illegal might in some circumstances be allowed

to continue. (A.2la-23a.) Conservation of trial time was

hardly a factor since the distriet court had already con-

ducted an exhaustive rule of reason trial. See Mackey v.

National Football League, 543 F.2d 606, 619-20 (Sth Cir.

1976), cert. dismissed pursuant to Rule 60, 98 S. Ct. 28

(1977). To ignore the extensive record in favor of making

a priori suppositions was pointless and dangerous.

Diverted from the extensive record by its per se ap-

proach, the Second Circuit made an erroneous assumption

which was central to its conclusion that blanket licensing

16. Case Comment, 91 Harv. L.. Rev. 488, 491 (1977).

necessarily has an anticompetitive effect on prices. The

court assumed that

“the very availability of the blanket license . . . must,

inevitably, permit the individual copyright owner to

choose the blanket license as his medium of ticensing

in preference to individual bargaining. The blanket

license dulls his incentive to compete.” (A.20a; em-

phasis in original.)

The record shows, however, and the district court found,

that this proposition is utterly false because the individual

writer or publisher has no power to choose the method by

which the network will license the music it wants. The

facts are that

—selection of music is made by the user (A.56a-61a,

63a-64a, 67a-69a, 72a, 90a-93a, 103a, 108a, 112a),

—there is a high degree of interchangeability among

songs suitable for network television use (A.48a,

92a, 119a-120a), and

—if a copyright owner will not license in the manner

a television network user wants, his music will not

' be used. (A.89a-93a, 105a-106a, 108a, 112a, 119a-

_ 120a.)

So long as a user elects to employ blanket licenses, the copy-

right owner has no occasion to compete for direct sales to

that user since the user does not want to buy two licenses

for the same music. When a user chooses not to take a

blanket license, however, the copyright owner has every

incentive to compete for direct sales to that user.” (A.62a,

120a.)

17. Even Judge Moore, who voted to deny rehearing, recognized

that the majority’s “assumption” “that the blanket license ‘reduces

price competition among the members and provides a disinclination

to compete’,” is “unsupported by proof.” (A.125a.)

The offering of blanket licenses creates a competitive

alternative in the market place to which the user, not the

be charged in direct licensing transactions is procompeti-

tive. There was no rational basis on which the court of

appeals could hold the offering of blanket licenses per se

illegal.

THE SECOND CIRCUIT HAS CREATED A WHOL.-

LY INEQUITABLE oe OF COPYRIGHT

Under the equitable doctrine of patent misuse, a patentee

whose conduct extends the patent monopoly beyond the

scope permitted by Congress or the Constitution cannot

enforce his patent. Morton Salt Co. v. G.S. Suppiger Co.,

314 U.S. 488 (1942). The doctrine has been applied to

deny enforcement in numerous cases where patentees have

engaged in various anticompetitive practices and have not

“purged” the misuse by abandoning the improper practice.

This Court has never decided whether a comparable anti-

trust-related misuse doctrine should be applied to copy-

rights.

The Second Circuit’s offhand footnote statement that the

millions of copyrights in the ASCAP and BMI repertories

had been “misused” '’ raises that question in the most com-

pelling possible context. The livelihoods of composers and

publishers depend upon the continued unimpaired enforce-

ability of these copyrights. Yet the Second Cireuit’s opinion

gives no indication that the court actually considered the

consequences of its misuse finding or took into account

18. “We dispose of CBS’ claim of copyright misuse in the same

manner and for essentially the same reasons as the §1 claim.”

(A.23a.)

the different policy considerations relating to patents and

copyrights."”

Despite their similarity for some purposes, there is a

vast difference between patents and copyrights in their

potential for misuse. The grant of an important patent

can have tremendous economic impact. A new industry can

arise under the sole control of a statutory monopolist. Old

methods of producing familiar products can be rendered

uneconomical and obsolete by a single invention, and a

patentee may be able to dictate the terms upon which pre-

vious enterprises will be allowed to continue to operate.

Even the most popular copyrighted song lacks anything

like the economic clout of an important patent. Inability to

perform a particular song would not exclude anyone from

engaging in the musie business at any level. Numerous

important and popular works are in the public domain and

constantly available. Other copyrighted compositions could

readily be substituted. Indeed, users with talent would find

19. The lower courts have previously been presented with anti-

trust-related copyright misuse defenses in several cases. Most have

rejected the defense. See, e.g., Harms, Inc. v. Sansom House Enter-

prises, 162 F. Supp. 129 (E.D. Pa. 1958), aff'd per curiam sub nom.

Leo Feist, Inc. v. Lew Tendler Tavern, Inc., 267 F.2d 494 (3d Cir.

1959); Buck v. Cecere, 45 F. Supp. 441 (W.D.N.Y. 1942). Others

have upheld or been willing to entertain it. See, e.g., M. Witmark &

Sons v. Jensen, 80 F. Supp. 843 (D. Minn. 1948), appeal dismissed

per curiam sub nom. M. Witmark & Sons v. Berger Amusement Co.,

177 F.2d 515 (8th Cir. 1949). At least one court sought to apply a

balancing test—a remedy less stringent than the \/orton Salt test.

Alfred Bell & Co. v. Catalda Fine Arts, Inc., 191 F.2d 99 (2d Cir.

1951). None of these courts attempted an in-depth analysis of policy

requirements and the policy distinctions between copyright and patent

problems. See generally Gibbs, “Copyright Misuse: Thirty Years

Waiting for the Other Shoe,” 23 ASCAP Copyright L. Symp. 31

(1977); Fine, “Misuse and Antitrust Defenses to Copyright Infringe-

ment Actions,” 17 Hastings L.J. 315 (1965); Note, “The Misuse

Defense in Copyright Actions,” 37 N.Y.U. L. Rev. 916 (1962):

Nicoson, “Misuse of the Misuse Doctrine in Infringement Suits,”

9 U.C.L.A. L. Rev. 76 (1962).

it simple enough to “invent around” a song and replace it

with an original work. Quite unlike the patent field, artists

could not be excluded from practicing any “method” or

“process” from which, for example, all “rock” songs or all

“folk” songs derive.

Thus, even if “abused,” the copyright monopoly would

have little potential for creating wide-ranging adverse eco-

nomic effects, and there was no reason to suppose that this

Court would approve the application of identical misuse

doctrines in patent and copyright cases.

Nor would it be equitable to apply such a misuse doctrine

in the present case in light of what these composers and

publishers have actually done.*? While remaining able and

willing to grant direct licenses themselves, they have simply

licensed BMI and ASCAP to license others to perform their

compositions. They have used the historically accepted

manner of selling music performance rights through licens-

ing organizations. They have dealt with organizations

whose offering of blanket licenses has long been recognized

and even required by government consent decree.

Even if these acts could be held to have violated the anti-

trust laws, this would be one case where the remedies avail-

able under those laws should be exclusive. Any misuse

doctrine surely should retain enough of the equitable nature

of its origin not to allow a court to apply it on these facts.

20. Indeed, a holding of misuse in the present case would be

most inequitable because copyright owners have so little guidance

as to how the “misuse” could be purged. At oral argument CIS’

counsel stated,

“Now, it is also true that in this per use system that price

negotiated between ASCAP and CBS would be a price which

would influence the price of direct licensing transactions be-

tween program producers and publishers.” (Tr. at 25.)

Since the per use license required by the Second Circuit must itself he

price fixing if the Second Circuit’s analysis of blanket licensing be

accepted, there would be grave risks in attempting a unilateral deter-

mination of what conduct would actually constitute purging.

CONCLUSION

For the ioregoing reasons, this petition for a writ of

certiorari should be granted.

May 5, 1978

Respectfully submitted,

‘ AMALYA L. KEARSE

GEORGE A. DAVIDSON

One Wall Street

New York, New York 10005

(212) 943-6500

Attorneys for Petitioners

Of Counsel:

CONLEY E. BRIAN, JR.

HUGHES HUBBARD & REED

One Wall Street

New York, New York 10005

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