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

Supreme Court brief1979

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IN THE

Supreme Court of the Yuited| States

OCTOBER TERM, 1977

No.

BROADCAST MUSIC, INC., et al.,

Petitioners,

COLUMBIA BROADCASTING SYSTEM, INC., et al.,

Respondents.

APPENDIX TO THE

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 10005

TABLE OF CONTENTS

Appenprx A:

Opinion of the United States Court of Appeals

for the Second Circuit, dated August 8, 1977

(562 F.2d 130)

Appenprix B:

Opinion of the United States District Court for

the Southern District of New York, dated

September 22, 1975 (400 F. Supp. 737)

Appenpix C:

Judgment of the United States Court of Appeals

for the Second Circuit, entered August 8,

1977

Appenpix D:

Orders of the United States Court of Appeals for

the Second Cirenit Upon Petitions for Re-

hearing and Suggestions for Rehearing In

Banc, entered December 6, 1977

PAGE

24a

l24a

Appendix A

Opinion of the Court of Appeals

UNITED STATES COURT OF APPEALS

For tHe Seconp Circuit

No. 24, Docket 75-7600.

ee GG

~OLUMBIA Broapcastine System, Inc.,

Plaintiff - Appellant,

agamst

American Society or Composers, AuTHORS

arp Pvsiisuers, et al.,

Defendants- Appellees.

EE ee

(Argued October 14, 1976; Decided August 8, 1977.)

Alan J. Hruska, New York City (Robert K. Baker, J. Barclay

Collins, Il, Robert M. Sondak, Kenneth M. Kramer, Cravath, Swaine

& Moore, and John D. Appel, New York City, of counsel), for plain-

tiff-appellant.

Amalya L. Kearse, New York City (George A. Davidson, Pamela

R. Chepiga and Hughes, Hubbard & Reed, New York City, of coun-

sel), for defendants-appellees, Broadcast Music, Inc., et al.

Jay H. Topkis, New York City (Allan L. Blumstein, Max

Gitter, Richard Reimer, Paul, IV ciss, Rifkind, Wharton & Garrison,

Bernard Korman, New York City, of counsel), for defendants-appel-

lees, American Society of Composers, Authors and Publishers, et al.

Before Moore, Axnverson and Gurretn, Circuit Judges.

Appendix A

Gurren, Circuit Judge:

The subject-matter of this appeal has been painstak-

ingly set forth with clarity in the opinion of the District

Court (Honorable Morris E. Lasker, Judge), 400 F.Supp.

737 (S.D.N.Y. 1975), and we refrain from restating the

details of the evidence adduced at trial. We refer to that

opinion for the evidence supporting the findings.

Columbia Broadcasting System, Inc. (‘‘CBS’’) is a na-

tional television network, of which there are two others,

National Broadcasting Company (‘‘NBC’’) and American

Broadcasting Company (‘‘ABC’’). CBS has brought this

antitrust action against the American Society of Com-

posers, Authors and Publishers (‘‘ASCAP’’), Broadcast

Music, Ine. (‘*BMI’’), and their members and affiliates.'

These members and affiliates are writers and publishers of

musical compositions.” ASCAP and BMI license the non-

dramatic performance rights in their compositions.’

1. The references hereafter to ASCAP or appellant shall be taken

to include BMI, unless the context clearly indicates otherwise. CBS

was one of the founders of BMI in 1939. It gave up its stock interest

in BMI in 1959, as have the other two networks. BMI in mod still

owned by individual broadcasters. CBS is the parent of CTN, the

Columbia Television Network.

2. “Writers” is a generic term which describes both those who

supply the music, the composers, and those who supply the lyrics, the

authors. See Schwartz v. Broadcast Music, Inc., 180 F. Supp. 322,

326 n.5 (S.D.N.Y. 1959).

3. These non-dramatic rights are called the “small” rights of

musical compositions as sed to the “grand” or dramatic rights.

For a discussion of the distinction between these terms, see 2 Nimmer

on Copyright §125.6 (1976). For our purposes it is enough to

note that while ASCAP could normally license the performance of

a song from, for example, My Fair Lady, it could not license the

(footnote continued on next page)

Appendia A

ASCAP and BMI issue blanket licenses for the right to

perform any or all of the compositions in their repertories

over the CBS network in exchange for a negotiated fixed

annual fee. CBS contends that this method of licensing

violates ($1 and 2 of the Sherman Act, 15 U.S.C. §§1 and 2,

and constitutes copyright misuse.* CBS sought an injune-

tion under (16 of the Clayton Act, 15 U.S.C. §26, directing

ASCAP and BMI to offer CBS performing rights licenses

on terms which reflect the actual use of music by CBS, or,

alternatively, enjoining them from offering blanket licenses

to any television network. CBS also sought a declaration

of copyright misuse under the Declaratory Judgment Act,

28 U.S.C. §$2201, 2202. The District Court, after a trial

without a jury on liability alone, dismissed the complaint,

and CBS appeals.

In dealing with performing rights in the music industry

we corfront conditions both in copyright law and in anti-

trust law which are swt generis. Analogy may be sought in

each field, but the practical complexities of licensing musical

song in the context of a performance in whole or part of the play

itself. Apparently, most uses of a musical composition by broad-

casters, nightclubs and restaurants would be considered non-dramatic

and therefore subject to license by ASCAP. Throughout this opin-

ion references to “performing rights” refer only to performing rights

ior profit in non-dramatic performances.

4. Sections 1 and 2 of the Sherman Act state in relevant part:

“$l. 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 ....

“$2. Every person who shall monopolize, or attempt to mo-

nopolize, or combine or conspire with any other person or per-

sons, to monopolize any part of the trade or commerce among

the several States, or with foreign nations, shall be deemed guilty

of a misdemeanor... .” .

Appendia A

non-dramatic performing rights can find no precise analogy

anywhere. In the case of ordinary products, persons who

use them without paying for them are generally thieves.

In the case of infringement of performing rights in musical

compositions, the infringement can be wholly innocent or

due to the pressure and difficulty of obtaining timely clear-

ance by individual license. This infringement aspect, un-

known elsewhere, except to some extent in the field of

patents, makes the music industry sui generis.

A summary history of ASCAP’s difficulties with the

antitrust laws will enable us to focus on the limited but

difficult questions presented on this appeal.

In 1934 the Department of Justice filed suit against

ASCAP seeking its dissolution and charging, inter alia,

that through its pooling of individual copyrights ASCAP

had the power to, and did, dominate the radio broadcasting

industry.” However, after two weeks of trial, the Govern-

ment received a continuance and the case remained dormant

thereafter.

In 1941 the Government sned ASCAP and BMI as un-

lawful combinations on the principal ground that the annual

blanket license (which was the only license then offered

by ASCAP and BMI) was in restraint of trade. The com-

plaint also charged that arbitrary prices were being ob-

5. United States v. ASCAP, Equity No. 78-388 (S.D.N.Y.,

filed Aug. 30, 1934). See Note, “Musical Monopolies and Legisla-

tive Control,” 53 Harv. L. Rev. 458, 459 (1940); Note, “Anti-

ASCAP Legislation and Its Judicial Interpretation, 9 Geo. Wash. L..

Rev. 713, 720 (1941).

Appendix A

tained for the blanket licenses by the illegal pooling of copy-

rights. The Government sought an order enjoining, mter

alia, ASCAP’s exclusive licensing and requiring a form

of per use licensing.

A consent decree resulted in 1941 by the terms of which

ASCAP could no longer assert the exclusive right to license

performing rights and could no longer interfere with in-

dividual licensing by its members. But the latter provision

was itself illusory, because if the member licensed perform-

ing rights in his own copyright, he nevertheless had to pay

the royalties derived therefrom into the ASCAP pot, thus

affording little incentive for licensing by the individual

member.®

Soon after the 1941 consent decree, ASCAP was sued

by two hundred motion picture theatre owners for violation

of Sections 1 and 2 of the Sherman Act. The problem was

special to the theatre exhibition industry which was re-

quired at that time to take an ASCAP blanket performance

license in order to exhibit motion pictures, the synchronized

music of which had already been licensed to the motion pic-

ture producer. The specific holding by Judge Leibell in

Alden-Rochelle, Inc. v. ASCAP, 80 F.Supp. 888 (S.D.N-Y.

1948), was that it was unlawful for ASCAP to require the

motion picture producer to contract with distributors that

the film wonld be shown only in theatres having an ASCAP

performance license. In broader terms, the decision held

that ASCAP was a combination in restraint of trade be-

6. See Section 11 (1) of the 1941 Decree, Lnited States vy.

ASCAP, 1940-43 CCH Trade Cases 956,104 at 403 (S.D.N.Y.

1941) ; Timberg, “The Antitrust Aspects of Merchandising Modern

Music: The ASCAP Consent Judgment of 1950,” 19 Law & Con-

temp. Prob. 294, 320 (1954).

Appendix A

cause the members had transferred all their non-dramatic

performing rights to ASCAP and were barred from in-

dividually assigning such rights to motion picture produc-

ers. 80 F.Supp. at 894. See also M. Witmark & Sons v.

Jensen, 80 F.Supp. 843, 849 (D.Minn.1948).’

At about this time, the Government began to renegotiate

the consent decree with ASCAP. The amended consent

decree reflected two important changes. First, ASCAP,

unlike its position under the 1941 decree, we » no longer per-

mitted to interfere with the right of any of its members to

issue a direct license to a user. The royalty so obtained did

not have to go into the ASCAP pot for later distribution

on some formula basis. Second, although ASCAP was still

not required to issue per use licenses for broadcasters, it

was required to issue per program licenses and not to dis-

criminate against their free selection by licensees.”

The per program license is simply another form of

blanket license. Both it and the ‘‘annual’’ blanket license

permit use of any composition in the ASCAP inventory,

and both permit payment by a fixed percentage of advertis-

ing revenues or a ‘‘flat’’ fee. The difference is that under

the annual blanket license, the payment remains the same

for the year regardless of whether all or none of the net-

work’s programs use ASCAP compositions, while under

the per program license the fee is determined by the num-

ber of programs using ASCAP compositions. However,

neither permits the licensee to pay only for those composi-

7. The Alden-Rochelle decision, supra, dealt only with perform-

ing rights in motion picture theatres.

8. See United States vy. ASCAP, 1950-51 CCH Trade Cases

962,595 at 63,753-754 (S.D.N.Y. 1950).

Appendix A

tions which it actually uses, and the per program license

should not be confused with a per use license.®

In strengthening the per program alternative, the

amended decree prohibits ASCAP from requiring or in-

fluencing the licensee to negotiate for an annual blanket

license before negotiating for a per program blanket license,

and prohibits discrimination against its use by price differ-

entials. If the licensee and ASCAP cannot agree upon a

fee, the matter is left to the District Court to determine a

‘*reasonable fee.’’ And a prospective licensee is theo-

retically free to negotiate for non-exclusive performance

rights with any ASCAP member, without interference by

ASCAP. But ASCAP is presently not free to negotiate

for licenses for the performance of particular musie with-

out the specific consent of the ASCAP member.

Though CBS acquiesced in this arrangement for many

years, it decided, some years ago, that it was being denied

the right to pay only for the music it uses. It could not,

by itself, attempt to amend the decree. Instead, it brought

this action, as it was entitled to do.” In the meantime,

9. Under the per program license, once there is a use, the

amount of use is irrelevant. it does not matter whether one bar or

twenty full compositions are performed in each program, the fee

remains the same.

The utility of the per program license appears to be limited to

broadcasters whose schedule consists predominantly of non-musical

programming. In any case, we understand that all three networks

and virtually all commercial television stations in the United States

hold “annual” blanket licenses.

Under a per use license, on the contrary, the user would pay

only for those compositions actually used during the program.

10. See Sam Fox Publishing Co. vy. United States, 366 U.S. 683,

689-90, 81 S.Ct. 1309, 6 L.Ed.2d 604 (1961); United States vy.

ASCAP (Shenandoah Valley Broadcasting, Inc.), 331 F.2d 117, 124

(2d Cir.), cert. denied, 377 U.S. 997, 84 S.Ct. 1917, 12 L.Ed.2d

1048 (1964).

Appendix A

NBC and ABC, while they may have other grievances, have

not joined in this attack on blanket licensing to the net-

works,"

CBS contends that the blanket licensing method is not

only an illegal tie-in or block-booking which in practical

terms is coercive in effect, but is also an illegal price-fixing

device, a per se violation of Sherman Act §1 in restraint of

trade.

Judge Lasker, treating the case essentially as a tie-in

or block-booking case which required proof of coercion to

establish illegality, held that the provision of the consent

decree allowing direct licensing for use by the individual

and, hence, illegal. He found that the right of CBS to

negotiate with individual copyright owners was not im-

practical, even if the blanket licensing system were not

enjoined, but rather that the evidence indicated that if

CBS chose to do so, it could obtain the performing rights

it needed for use in a direct negotiation market without

having to take a blanket license from ASCAP.“ On that

11. We note, however, that both ABC and NBC have specifically

retained the right to transfer to a per use license from a blanket

license, but only in the event that CBS receives a per use license

from ASCAP.

12. Judge Lasker had the benefit of the expert testimony of

three distinguished economists, Franklin M. Fisher for CBS.

Robert Nathan for ASCAP and Peter ©. Steiner for BMI. The

experts disagreed sharply on the likely future action of a direct nego-

tiation market. Judge | asker essentially accepted the Nathan view.

He found that the market forces would tend to create a licensing

(footnote continued on next page)

Appendix A

basis, as well as on his conclusion that there was no unlaw-

ful price-fixing, he dismissed the complaint.

Without commenting in detail on the evidence contained

in the twenty-four volumes of the Appendix, we note that

there was conflicting testimony by witnesses from the music

industry and by expert economists on each side. We recog-

nize that not all network needs for musie would encounter

the same difficulty in procurement. Thus, theme or back-

ground music is often original music created by a com-

poser on a salary basis for a packager of the program or

for the network. In such case, individual negotiation for

the performing rights would not be difficult. Where the

theme or background musie has already been published,

the name of the publisher is easily available. In the case

of ‘‘feature’’ performances on variety shows, the obtaining

of performance rights does involve some uncertainty.

Situations may indeed arise where the writer’s consent is

required and would be hard to get. However, even in this

area CBS could require the outside packager or producer

to obtain the performance rights when he obtains the

synchronization rights.’®

agency similar to the Harry Fox Agency which handles synchroniza-

tion rights. There was testimony that it would take probably six

months to a year after CBS’ announcement of its intention to go to

direct licensing tor a viable market to emerge and that, in the mean-

time, there would be some disinclination to deal with CBS with some

attendant confusion. Mr. Nathan frankly conceded, however, that

there is no actual evidence of the characteristics of a direct negotia-

tion market in these circumstances, for it has never been tried.

13. The writer generally assigns the right to license performing

rights to the music publishers. Under the American Guild of

Authors and Composers form contract, publishers are required to

obtain an \GAC writer's consent for television synchronization

(footnote continued on next page)

10a

Appendix A

The conflicting predictions at the trial obviously in-

volved psychological as well as economic factors, and the

economic theory presented was an amalgam of the two.

Prophesying the future is one of the less satisfactory tools

of the judicial process. Suffice it to say that our review

leads us to the conclusion that the essential finding of the

District Court that such a market can exist is not clearly

erroneous."*

licenses for songs over ten years old, and motion picture synchroniza-

tion licenses for vocal use of a composition. The District Court,

based on the testimony, found that “|{t}here is every reason to believe

that most writers would either give their publishers blanket consent

for performance licenses, or give it promptly on a use-by-use basis,

just as they presently do regarding synch rights.” 400 F.Supp. at

61. The upshot is that, as a practical matter, the networks would

generally deal with publishers or through brokers or agencies of the

publishers, rather than composers. See 400 F.Supp. 760-62.

14. CBS also calls attention to one historical situation and to

one current situation in support of its thesis that a direct negotiation

market will not work. It contends that »yhen Minnesota Mining and

Manufacturing Company tried to negotiate individual licenses for per-

forming rights on an experimental background music project, it

allegedly met with frustration. The District Court found, however,

that CBS’ allegations concerning that situation were overstated and,

in any case, did not support CBS’ contentions here, 400 F.Supp. at

771-75. Its finding is not clearly erroneous.

CBS also raises a subsidiary problem dealing with “music in the

can.” Each network now has a large inventory of recorded pro-

grams and motion picture films containing music for which it has

synchronization rights but no performing rights other than those

afforded by the ASCAP blanket license. CBS contends that since

it lacks performing rights the copyright proprietor would have an

enormous leverage to exact a premium, because, in the absence of a

blanket license, appellant could not telecast the motion picture with-

out the music owner's consent. There is a good deal of speculation

in the record on what would happen to the amount of rovalty for

“music in the can” in various hypothetical situations, including tes-

timony that CBS is so powerful a buyer that publishers could not

afford to get into its bad graces. This is a question of fact and the

(footnote continued on next page)

lia

Appendix A

While this finding of the District Court that there is

indeed a viable alternative to the blanket license disposes

of the charge that the blanket license involves an illegal

tie-in or block-booking, see, e.g., United States v. Para-

mount Pictures, Inc., 334 U.S. 131, 159, 68 S.Ct. 915, 92

L.Ed. 1260 (1948); 17 U.Chi.L.Rev. 183 (1949); Timberg,

supra note 6 at 300, it does not resolve the charge of re-

straint of trade by the fixing of prices.

The charge that there is a restraint of trade by price-

fixing is founded upon the conception that when any group

of sellers or licensors continues to sell their products

through a single agency with a single price, competition on

price by the individual sellers has been restrained. When

the single price includes compensation even for those in

the combination whose wares are not used, it may be said

that the single price has been increased to take care of

such compensatory factors which are irrelevant to true

competition. But even if the single price is reasonable, the

determination of how much each copyright owner gets from

the common pot is an artificial fixing of the price to that

member of the combination for his composition.’* His dis-

District Court found that “CBS has not proven that its fears of a

‘holdup’ by copyright proprietors are justified.” 400 F.Supp. at 770.

In any event, it is hard to see how “music in the can” problems will

be solved by an injunction against blanket licensing. The individual

licenses would still have to be negotiated with some of the same eco-

nomic problems involved.

15. ASCAP distributes about $1,000 ($400-$500 to the publisher

or publishers ; $400-$500 to the writer or writers) for each television

network feature performance of an ASCAP composition (and corre-

spondingly lower amounts for theme and background uses). The

royalty is fixed by ASCAP and not by the licensee.

Paragraph XI of the 1950 amended decree requires ASCAP to

distribute royalties on ‘a basis which gives primary consideration to

(footnote continued on next page)

12a

Appendix A

tributive share of the common royalties may be greater

than the royalty he would receive in a free market. In such

case, even if the members of the combination are willing

not only to join in the blanket license, but also to sell their

individual performing rights separately, the combination

is nevertheless a ‘‘combination which tampers with price

structures [and therefore] engage[s] in an unlawful ac-

tivity.’’ U'nited States v. Socony-Vacuum Oil Co., 310 U.S.

150, 221, 60 S.Ct. 811, 848, 84 L.Ed. 1129 (1940)."

There is no doubt that when ASCAP issues a blanket

license, the royalty received by the individual writer or

publisher is the result of at least the threshold elimination

of price competition for the performing rights in his own

particular composition, and Judge Lasker found that mus-

ical compositions, though not fungible, do fall into classes,

so that one composition in a particular class may serve the

network as well as another in the same class. 400 F.Supp.

at 751-52. There is, moreover, some analogy to the patent

pooling cases which broadly hold that the pooling of com-

peting, and perhaps even non-competing, patents is illegal.

See United States v. New Wrinkle, Inc., 342 U.S. 371, 72

S.Ct. 350, 96 L.Ed. 417 (1952); United States v. Line Mate-

the performance of the compositions . . ..”. Under the 1960 amend-

ment, writers also have the option of receiving royalties under a plan

which compensates them additionally for length of membership and

the recognized status of their works. See 1960 Consent Decree, Sec-

tion III(A) and Part I of Attachment A, United States vy. ASCAP.,

1960 CCH Trade Cases 169,612 at 76,469-470 (S.D N.Y. 1960).

_16. And, of course, it has long been held that the fact that “the

object of sale is the creation or product of a man’s ingenuity does not

alter this principle.” Associated Press v. United States, 326 U.S. 1,

15, 65 S.Ct. 1416, 1422, 89 L.Ed. 2013 (1945). See Fashion Orig-

inators’ Guild v. Federal Trade Commission, 312 U.S. 457, 61 S.Ct.

703, 85 L.Ed. 949 (1941).

13a

Appendix A

rial Co., 333 U.S. 287, 68 S.Ct. 550, 92 L.Ed. 701 (1948).""

While these cases involved resale price-maintenance agree-

ments, the broad language of the opinions treated the patent

pooling agreement as itself unlawful.’*

Price-fixing, as we have been instructed, is generally

unlawful per se. United States v. Socony-Vacuum Oil Co.,

supra, 310 U.S. at 221, 223, 60 S.Ct. 811: United States v.

Trenton Potteries Co., 273 U.S. 392, 47 S.Ct. 377, 71 L.Ed.

700 (1927). Yet it may be that in some circumstances mar-

ket requirements would require the acceptance of some

form of price-fixing. In fact, both the plaintiff here, CBS,

and the Department of Justice, which is charged with en-

forcing the Sherman Act, recognize in the case of ASCAP

blanket licenses what CBS has termed the ‘‘Per Se Rule

with a Market-Functioning Exception.’’ In short this con-

cept holds that price-fixing is per se illegal except where it

is absolutely necessary for the market to function at all.

The question was addressed by the Government in the

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

(9th Cir. 1967), cert. denied, 389 U.S. 1045, 88 S.Ct. 761, 19

L.Ed.2d 838 (1968). That was an action for copyright in-

fringement brought by several ASCAP members against a

radio broadeaster operating in the state of Washington.

The broadcaster defended in part on the assertion that

ASCAP’s price-fixing as well as its commission of other

17. Hence, on the surface, the pool of copyrights may be analo-

gized to a pool of competing patents.

18. See United States v. New Wrinkle, Inc., 342 U.S. 371, 377,

380, 72 S.Ct. 350, 96 L.Ed. 417 (1952): United States v. Line Ma-

terial Co., 333 U.S. 287, 308, 68 S.Ct. 550, 561, 92 L.Ed. 701 (1948)

(illegal “whether it is a price agreement between producers for sale

or between producer and distributor for resale’) (emphasis added).

l4a

Appendis A

antitrust violations constituted copyright misuse. It also

counterclaimed for treble damages and injunctive relief.

The District Court held that the copyrights were infringed

and that the defense and counterclaims were insufficient.

The Ninth Cireuit, in affirming, rejected the antitrust

defense.

In K-91 the parties recognized that there was a market

need for blanket licensing for the single radio station there

involved; indeed, they had stipulated that ‘‘{i]t would be

commercially, practicably and virtually impossible for de-

fendant and almost all other broadcasters to aequire a sep-

arate license for each performance broadcast over com-

mercial stations.’’®

On the petition for certiorari in an amicus brief, the

Solicitor General, in approving the result reached by the

Ninth Circuit, stated:

‘*The Sherman Act has always been discriminat-

ingly applied in the light of economic realities. There

are situations in which competitors have been per-

mitted to form joint selling agencies or other pooled

activities, subject to strict limitations under the anti-

trust laws to guarantee against abuse of the collective

power thus created. Associated Press v. United States,

326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945) ; Unite’

States v. St. Louis Terminal, 224 U.S. 383, 32 S.Ct. 507,

56 L.Ed. 810 (1912); Appalachian Coals, Inc. v. United

States, 288 U.S. 344, 53 S.Ct. 471, 77 L.Ed. 825 (1933) ;

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

38 S.Ct. 242, 62 L.Ed. 683 (1918). This case appears to

19. The stipulation is quoted in Judge Lasker's opinion below on

ASCAP’s motion for summary judgment. Columbia Broadcasting

System, Inc. v. ASCAP, 337 F.Supp. 394, 400 (S.D.N.Y. 1972).

l5a

Appendix A

us to involve such a situation. The extraordinary num-

ber of users spread across the land, the ease with which

a performance may be broadcast, the sheer volume of

copyrighted compositions, the enormous quantity of

separate performances each year, the impracticability

of negotiating individual licenses for each composition,

and the ephemeral nature of each performance all com-

bine to create unique market conditions for perform-

ance rights to recorded music.

‘Tf this market is to function at all, there must be

—at least with respect to licensing the performance of

recorded music—some kind of central licensing agency

by which copyright holders may offer their works in a

common pool to ail who wish to use them.’”°

The Solicitor General recognized that for some broadeast-

ers direct licensing might be possible and more desirable,

and that technological changes, such as in computer tech-

nology, might eliminate the need for the blanket license.

He found, however, that market necessity may justify ‘‘ bulk

licensing of recorded music’’ where no ‘‘ practical alterna-

tives exist’”’ and concluded that on the record in that radio-

broadcasting case the ASCAP blanket license to the radio

station did not violate the antitrust laws.

This ‘‘market necessity’’ concept, as a very limited and

narrow exception to the per se rule against price-fixing,

is not without merit. It would seem reasonable to conclude

that Section 1 of the Sherman Act, which prohibits com-

binations in restraint of trade, should be construed so as not

20. Memorandum of the United States as Amicus Curiae on Peti-

tion for Writ of Certiorari in the Supreme Court of the United States.

K-91, Inc. v. Gershwin Publishing Corp.. No. 147, dated December,

1967 at 10-11 (“Amicus Brief’).

21. Jd. at 13.

l6a

Appendiz A

to prohibit the very trade it was intended to protect.”

We do not quarrel, therefore, with the result reached by the

Ninth Cireuit in K-91.

In this case, by contrast, Judge Lasker found that, with

respect to the television networks, a ‘‘practical alternative”’

—the free direct negotiation market—can exist even beside

the blanket license. It would seem to follow a fortiori that

the direct negotiating market can surely exist if the blanket

license is eliminated.

The dilemma here is that if the blanket licensing system

is viewed as block-booking, the availability of a direct nego-

tiating market does save it from being ‘‘coercive.’’ On

the other hand, if the blanket licensing system is held to be

price-fixing in restraint of trade, the very availability of a

direct negotiating market would tend to make the blanket

license less of a ‘‘market necessity.’’ Curiously, though

appellant now focuses its principal attack on the blanket

license as a price-fixing device, it was appellant which

throughout the trial tendered proof upon proof that a direct

negotiating market posed severe practical problems. If

that is true, such proof tends to demonstrate a need for the

availability of an alternative blanket license. On the other

hand, it was ASCAP which attempted to prove that a direct

negotiating market can be made to exist even in competition

with the blanket license. This raises the question, paradox-

ically, whether if that be true, the blanket license can none-

theless continue to be regarded as a market necessity.

Thus, if we pose the issue as tie-in or block-booking, the

22. The narrowness of the exception is emphasized by the cir-

cumstance that it is difficult even to imagine another ‘ndustry where

such a “market necessity” defense would be applicable.

17a

Appendix A

absence of coercion supports the view of the District Court

if we accept its finding that a direct negotiating market is

feasible. On the other hand, if we pose the issue as restraint

of trade through price-fixing, the very finding that a direct

negotiating market is feasible tends to undermine the need

for the blanket license as a market necessity.

Several arguments have been advanced to refute the

contention that the blanket license is itself a price-fixing

mechanism in restraint of trade. The District Court met

the price-fixing argument by suggesting that price-fixing

has been sustained in patent cases in the absence of coer-

cion. It cited Zenith Radio Corp. v. Hazeltine Research,

Inc., 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969), and

Automatic Radio Manufacturing Co. v. Hazeltine Research,

Inc., 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950), for

the proposition that ‘‘the critical difference between an il-

legal licensing arrangement and a legal one is the fact of

coercion or compulsion by the licensor.’’ 400 F.Supp. at

749. The Hazeltine cases did not involve a restraint of

trade by price-fixing, however, for these were eases in

which a single trader, Hazeltine, owned and licensed all the

patents involved. Coercion is simply not an essential in-

gredicnt of price-fixing. Cf. United States v. Socony-Vacu-

um Oil Co., supra, 310 U.S. at 225 n.59, 60 S.Ct. 811.

Another price-fixing defense asserted by ASCAP and

accepted by the Ninth Cireuit in K-97 is that the consent

decree insulated ASCAP against the restraint of trade

charge on the ground that the price of the blanket license

was ‘‘reasonable,’’ since resort to the District Court was

available to determine ‘‘reasonableness.’’ That a price

fixed by the agreement of competitors is ‘‘reasonable’’ is

18a

Appendix A

not a defense, however.** Nor do we think that the deter-

mination of the ‘‘reasonableness’’ of the price by a court

saves the price that has been fixed by a combination from

continuing to be an unlawful device in restraint of trade,

absent the justification of market necessity. In the K-91

situation, the resort to judicial supervision was adequate

for the simple reason that there was no other solution pos-

sible. The provision in the consent decree for resort to the

District Court if there is a dispute on the reasonableness

of the blanket license fee was highly desirable in the K-91

situation, because there it represented a threatening veto to

gross overreaching. On the other hand, when a competitive

market is available, as the District Court found to be the

case here, the determination of price by a judge can hardly

be the equivalent of a price determined by a competitive

market. For a price fixed by a judge, no matter what his

personal competence, is not a true reflection of competitive

market forces. The price, no matter how reasonable, if

determined on the imprimatur of a court, remains the

product of non-competitive forces.

Nor is ASCAP ‘‘disinfected’’ by the Government con-

sent decree, see K-91, supra at 4; such a decree does not

‘‘constitut{e] an implied partial repeal of the antitrust

23. Cf. United States v. Trenton Potteries Co., 273 US. 392,

396-97, 47 S.Ct. 377, 71 L.Ed. 700 (1927). We also note that the

costs of litigating the issue of what is a “reasonable” fee in the South

ern District of New York would discourage some users from taking

advantage of this provision in the decree. In fact. in the 27-year

existence of the provision, the consent-decree judge has never had to

fix a “reasonable” fee for an ASCAP blanket license.

Finally, we note that this defense would not be available to BMI

because its consent decree has no provision providing recourse to the

District Court to determine a “reasonable” fee in cases of disagree-

ment between the parties.

19a

Appendix A

laws.’’ 337 F.Supp. at 399-400. A consent decree has no

such potency. Non-parties who did not participate in the

settlement, and who are affected by ASCAP’s activities

may challenge them under the antitrust laws. See Sam For

Publishing Co. v. United States, 366 U.S. 683, 689-90, 81

S.Ct. 1309, 6 L.Ed.2d 604 (1961); United States v. ASCAP

(Shenandoah Valley Broadcasting, Inc.), 331 F.2d 117, 124

(2d Cir.), cert. denied, 377 U.S. 997, 84 S.Ct. 1917, 12 L.Ed.

2d 1048 (1964).

As the Supreme Court has noted, subsequent to the K-91

decision, a consent decree, as it affects the parties them-

selves, is simply a compromise based on many factors.

United States v. Armour & Co., 402 U.S. 673, 681-82, 91

S.Ct. 1752, 29 L.Ed.2d 256 (1971). In historical fact, the

government lawyer who negotiated the 1950 decree has

stated that the ‘* District Judge who entered the judgment,

in conformity with the prevailing practice, gave no indica-

tion as to the legality or illegality of ASCAP’s past organ-

ization or contemplated reorganization, or of its old or new

practices.’’ Timberg, supra note 6, at 295 n.2. And more

recently, as the Solicitor General noted in his amicus brief

in K-91: **(pJjrivate parties, of course, always have the

option of seeking relief in their own behalf, notwithstanding

any consent decree accepted by the government.’”* The

Government eonsent decree does not insulate ASCAP from

ihe claims of private plaintiffs.”

24. See Amicus Brief, supra note 20 at 14.

25. We do not imply that a government consent decree should be

given no weight at all, especially since the Department of Justice has

the responsibility for enforcing the Sherman Act. But it is not even

clear that the problems presented in this action are coeval with those

which surfaced almost 30 years ago when this decree was negotiated.

We have had a more recent indication of the government's views,

morecver, in its amicus brief in K-97,

20a

Appendix A

Finally, ASCAP argues, as its basic premise, that the

blanket license of the performance rights in all the copy-

rights in the Society’s basket is so different from the per-

forming right in each separate copyright that the claim of

trade restraint by price-fixing is precluded. It urges that

the collective activity necessary for the blanket license does

not amount to price-fixing of the individual performing

rights since the network can still bargain for such individ-

ual performing rights with each copyright owner sep-

arately. The argument that if one does not want the

blanket license he need not take it is plausible. Yet the

very availability of the blanket license itself involves the

fixing of a collective price, which must, inevitably, permit

the individual copyright owner to choose the blanket license

as his medium of licensing in preference to individual bar-

gaining. The blanket license dulls his incentive to com-

pete. ‘‘(T he fact that an agreement to restrain trade does

not inhibit competition in all of the objects of that trade

cannot save it from the condemnation of the Sherman Act.’’

See Associated Press v. United States, 326 U.S. 1, 17, 65

S.Ct. 1416, 1423, 89 L.Ed. 2013 (1945).

ASCAP analogizes a blanket license to a symphony

orchestra, in which the ensemble is different from the in-

dividual musicians and which may therefore lawfully com-

mand a price which is different and higher than the price

for each musician’s performance. The fallacy is that when

the orchestra plays as an ensemble it represents the only

product of its kind. Here each composer, by contrast,

records his own solo for separate broadcast. The mu-

sicians in an orchestra are not competitors; the con-

2la

Appendix A

tributors of copyrights for the blanket license in many

situations are, and it is their price competition among

themselves that is affected by the blanket license.

We therefore conclude that the ASCAP blanket license

in its present form is price-fixing and with respect to the

television networks cannot be saved by a ‘‘market neces-

sity’’ defense. It therefore constitutes a violation of §1 of

the Sherman Act. We accordingly reverse the District

Court’s dismissal of the complaint.”®

Ill

The trial below was on liability alone, and in view of

the dismissal of the complaint no separate evidence was

taken on remedy. In reversing the dismissal of the com-

plaint we do not fashion the remedy. We think it useful,

however, to offer some guidelines to the District Court in

its selection of remedies.

Normally, after a finding of price-fixing, the remedy is

an injunction against the price-fixing—in this case, the

blanket license. We think, however, that if on remand a

remedy can be fashioned which will ensure that the blanket

license will not affect the price or negotiations for direct

licenses, the blanket license need not be prohibited in all

26. In not reaching the same result as the Ninth Circuit did in

K-91, we, in no way, intimate that we would have held the blanket

license to the single radio station to be unlawful, or that the blanket

licenses given by ASCAP generally are unlawful. The K-9/ result

was, in our view, entirely justifiable as an example of market neces-

sity. Indeed, CBS conseles that market necessity would probably

justify ASCAP blanket licenses for restaurants, night clubs, skating

rinks and even radio stations.

22a

Appendix A

circumstances.” The blanket license is not simply a

‘*naked restraint’’ ineluctably doomed to extinction. There

is not enough evidence in the present record to compel a

finding that the blanket license does not serve a market

need for those who wish full protection against infringe-

ment suits or who, for some other business reason, deem

the blanket license desirable. The blanket license includes

a practical covenant not to sue for infringement of any

ASCAP copyright as well as an indemnification against

suits by others.

Our objection to the blanket license is that it reduces

price competition among the members and provides a

disinclination to compete. We think that these objections

may be removed if ASCAP itself is required to provide

some form of per use licensing which will ensure com-

petition among the individual members with respect to

those networks which wish to engage in per use licensing.”*

27. We recognize that CBS contends that a blanket licensing sys-

tem overhanging the market in any combination of circumstances will

necessarily atfect the price for each set of individual performing rights.

On this record we are not convinced that this is necessarily so. And

the District Court found the contrary.

CBS has asserted that an individual member of ASCAP, thrown

into a direct negotiating market for the first time, will tend to measure

the royalty he asks for a particular performing right by the royalty

he has actually been receiving from ASCAP as his share under the

blanket license. Considering the counterforce of the strong bargain-

ing power of CBS, we cannot accept this as more than a theoretical

assumption. Until some alternative method has actually been allowed

to function for some time, contemporaneously with the blanket license.

no man can say for certain that CBS’ fears will prove inevitably to be

true.

28. On remand, we think it would be appropriate for the District

Court to invite the Department of Justice to participate or express its

view on the appropriate remedy.

We also emphasize that in the foregoing discussion of remedy,

“ASCAP” also includes appellant BMI. See note 1, supra. ;

23a

Appendix A

We reverse the judgment dismissing the complaint and

remand to the District Court for further proceedings in

accordance herewith.” If the District Court considers it

appropriate, it may fashion interim relief as well. No

costs.

Moore, Circuit Judge (co cucring):

I concur in the majority’s conclusion to remand for fur-

ther proceedings so that such proof and argument as may

be required, may be presented as will enable the court, and

hopefully the parties as well, to evolve a practical method

of adding to ASCAP’s repertory per use licensing. Since

future proceedings will be directed to that issue, my points

of disagreement will not even rise to the status of that

legal vacuity known as ‘‘dicta’’. However, I do not agree

that ‘‘the ASCAP blanket license in its present form is

price-fixing and with respect to the television networks

cannot be saved by a ‘market necessity’ defense.’’

Market necessity is recognized by the majority as ‘‘not

without merit’? and certainly K-91%7 ne. vy. Gershwin Pub-

lishing Corp., 372 F.2d 1 (9th Cir. 1967), cert. denied, 389

U.S. 1045, 88 S.Ct. 761, 19 L.Ed.2d 838 (1968), and the

Solicitor General’s accompanying amicus brief would sup-

port this view.

29. As noted, CBS also claims violation of $ 2 of the Sherman

Act. We need not go into the legal arguments on this point because

they are grounded on its factual claim that there are barriers to direct

licensing and “bypass” of the ASCAP blanket license. The District

Court, as noted, rejected this contention and its findings are not

clearly erroneous. The § 2 claim must therefore fail at this time and

on this record.

We dispose of CBS’ claim of copyright misuse in the same manner

and for essentially the same reasons as the $ 1] claim.

24a

Appendix B

Opinion of the District Court

UNITED STATES DISTRICT COURT

SouTHern Disrrict or New York

No. 69 Civ. 5740.

‘

CotumBia Broapcastine System, Inc.,

Plaintiff,

American Society or Composers et al..

Defendants.

(Filed September 22, 1975.)

Lasker, District Judge.

In this age of change the quality of life has been funda-

mentally altered and influenced by the development of the

automobile, the computer and television.

Millions of viewers spend untold hours weekly viewing

television. During the larger part of that time the viewer

is a listener to programs which utilize music, whether as

background, as theme or as a feature. This case relates

to the method by which networks are licensed to use copy-

righted music on television.

The Columbia Broadcasting System (CBS)* brings this

antitrust action against the American Society of Compos-

_ 1. CBS is engaged in a number of businesses, only one of which

is the operation of the CBS television network (CTN). Although

the parties distinguish between CBS and CTN in their st-trial sub-

missions, for the sake of clarity we refer throughout this opinion to

both the parent corporation and the network as “CBS.”

25a

Appendia B

ers, Authors and Publishers (ASCAP), Broadcast Music,

Ine. (BMI )and their members and affiliates.2 It complains

that the present system by which ASCAP and BMI issue

blanket licenses for the right to perform any or all of the

compositions in their repertories over the CBS network

in exchange for a flat annual fee violates the Sherman Act,

15 U.S.C. °S1 and 2. The complaint seeks an injunction

under °16 of the Clayton Act, 15 U.S.C. §26, directing

ASCAP and BMI to offer CBS performance right licenses

on terms which reflect the nature and amount of CBS’

actual use of music, or in the alternative, enjoining them

from offering blanket licenses to any television network.

(BS also seeks a declaration of copyright misuse under

the Declaratory Judgment Act, 28 U.S.C. §§2201, 2202.

Introduction

A. The Parties

Prior to ASCAP’s formation in 1914 there was no

effective method by which composers and publishers of

musi¢ could secure payment for the performance for profit

of their copyrighted works. The users of music, such as

theaters, dance halls and bars, were so numerous and wide-

spread, and each performance so fleeting an occurrence,

that no individual copyright owner could negotiate licenses

with users of his music, or detect unauthorized uses. On

2. The other named defendants are certain members of ASC.AP.,

as representative of the class of ASCAP’s members: and certain

BMI affiliates, as representative of the class of BMI affiliates. The

case has heretofore been declared a class action against both classes.

26a

Appendix B

the other side of the coin, those who wished to perform

compositions without infringing the copyright were, as a

practical matter, unable to obtain licenses from the owners

of the works they wished to perform. ASCAP was organ-

ized as a ‘‘clearing-house’’ for copyright owners and users

to solve these problems. The world of music has changed

radically since 1914. Radio and television broadcasters

are the largest users of music today; they ‘perform’

copyrighted music before audiences of millions. In 1975

ASCAP and BMI licensed these large users, including CBS

and the other networks as well as smaller ones such as

concert halls and background music services. —

Because of the multitude of performances of music

they generate each year, virtually all radio stations and

television networks secure the rights to perform the music

they use by a ‘“‘blanket’’ license. An ASCAP blanket

license gives the user the right to perform all of the compo-

sitions owned by its members as often as the user devires

for a stated term, usually a year. 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 indi-

vidual licenses which otherwise would be necessary to per-

form the copyrighted music used on radio stations and

television networks in the course of a year. Moreover, it

gives the user unlimited flexibility in planning programs,

because any music it chooses is ‘automatically’? covered

by the blanket license.

ASCAP’s current membership includes some 6,000 music

publishing companies and 16,000 composers. Its members

have granted ASCAP, as their licensing agent, the non-

27a

Appendix B

exclusive right to license users to perform the compositions

owned by them. ASCAP provides its members with a wide

range of services. It maintains a surveillance system of

radio and television broadcasts to detect unlicensed uses,

institutes infringement actions, collects revenues from

licensees and distributes royalties to copyright owners in

accordance with a schedule which reflects the nature and

amount of the use of their music and other factors.

BMI, a non-profit corporation, was organized in 1939 by

members of the radio broadcasting industry, including CBS.

It is affiliated with approximately 10,000 publishing com-

panies and 20,000 writers and functions in essentially the

same manner as ASCAP. Although CBS sold back its

BMI stock to the corporation in 1959, BMI is still owned

entirely by broadcasters.

As a practical matter virtually every domestic copy-

righted composition is in the repertory of either ASCAP,

which has over three million compositions in its pool, or

BMI, which has over one million. Like ASCAP, BMI of-

fers blanket licenses to broadcasters for unlimited use of

the music owned by its ‘‘affiliates.’’ Almost all broad-

casters hold blanket licenses from both ASCAP and BMI.

As is generally known, CBS operates one of three na-

tional television networks, as well as AM and FM radio

stations in seven major cities. It has held blanket licenses

from ASCAP for its radio broadcast operations since

1928, and from BMI since soon after that organization was

founded in 1939. It has held ASCAP and BMI blanket

licenses for its television network on a continuous basis

since the late 1940’s.

28a

Appendia B

CBS supplies television programs to approximately two

hundred affiliated television stations throughout the coun-

try, and telecasts about 7,500 programs per year. Many of

these programs make use of copyrighted music which is

recorded on the soundtrack. However, CBS does not pro-

duce most of the programs seen on its network. Instead it

purchases the right to broadcast programs produced by

independent television production companies, known as

“program packagers.’’ Most of the popular prime-time

serials fall into this category. In addition (BS itself

produces a television serial ( ‘*Gunsmoke’’), two day-time

serials, a number of ‘‘specials,’’ usually variety shows, as

well as news, public affairs and sports programs.

Agreements between program packagers and CBS nor-

mally stipulate the price at which the packager will produce

a program in a series and furnish it to CBS for broadeast.

Pursuant to the agreements, packagers are responsible for

obtaining and furnishing to CBS most rights necessary for

the use of copyrighted music by the network, such as the

right to record a copyrighted song in synchronization with

the film or video tape (‘‘synch”’ rights). However, pro-

gram packagers do not, in the present scheme of things,

furnish to CBS the right to perform the copyrighted music

for profit as part of a television broadcast. Ever since

television became commercially practicable in the late

1940’s, CBS has obtained such “performance” rights for

packaged programs, as well as for the programs it pro-

duces itself, from ASCAP and BMI by purchasing blanket

licenses. From time to time it has renewed its licenses

after negotiations with ASCAP and BMI. In the history

of the parties the fee for the blanket license has been ex-

29a

Appendix B

pressed in terms of a percentage of CBS’ advertising

revenues. For example, for many years prior to the in-

stitution of suit, the BMI blanket license fee remained at

1.09% of net receipts from sponsors after certain dedue-

tions. This resulted in payment to BMI of about $1.6 mil-

lion in 1969. For access to ASCAP’s considerably larger

repertory, CBS paid about $5.7 million in 1969. Averaging

the total of $7.3 million paid by CBS in that year over

7,500 programs, its cost for ASCAP or BMI musie runs

about $1,000. per program. Of course, as detailed later,

many of CBS’ programs, such as news and public affairs

shows, use no music at all; while others, such as variety

shows, use a great deal. $1,000. is a small fraction of the

total cost of the program. CBS pays about $200,000. for

each episode of a one hour variety show or dramatic serial,

and as much as $750,000. for a made-for-TV movie. Since

the commencement of this action, CBS has held interim

blanket licenses from ASCAP and RMT at a total annual

cost of some $6 million.

B. The Consent Decrees

Neither ASCAP nor BMI is a stranger to antitrust

litigation. In 1941 the government sued ASCAP for anti-

trust violations. The action resulted in a consent decree

which largely governs ASCAP’s relationships with §li-

censees such as CBS and other users. .As amended in 1950,

the decree requires ASCAP to offer a ‘‘per program”? li-

cense to broadeasters in addition to the blanket license it

has traditionally offered. Both forms of license grant the

right to use any or all of the works in ASCAP’s repertory.

However, the blanket license allows use of the entire in-

30a

Appendix B

ventory for a designated period of time, usually a year,

for which the user pays a flat fee, while the per program

license permits use of the entire repertory but requires pay-

ment only with respect to programs which actually make

use of copyrighted music. The 1950 decree mandatorily en-

joins ASC AP to set its fees for these licenses in a manner

which gives the user a genuine choice between them, and

prohibits it from requiring or influencing the prospective

licensee to negotiate for a blanket license before negotiating

for a per program license. If ASCAP and the licensee

3. The 1950 decree states in part that ASCAP is:

(B) Ordered and directed to issue to any unlicensed radio

or television broadcaster, upon written request, per program

licenses, the fee for which

(1) in the case of commercial programs, is, at the option

of ASCAP, either (a) expressed in terms of dollars, requiring

the payment of a specified amount for each program in which

compositions in the ASCAP repertory shall be performed, or

(b) based upon the payment of a percentage of the sum paid

by the sponsor of such program for the use of the broadcast-

ing or telecasting facilities of such radio or television broad-

caster,

(2) in the case of sustaining programs, is at the option

of ASCAP, either (a) expressed in terms of dollars, requiring

the payment oi a specified amount for each program in which

compositions in the ASCAP repertory shall be performed, or

(b) based upon the payment of a percentage of the card rate

which would have been applicable for the use of its broadcast-

ing facilities in connection with such program if it had been

commercial, and

(3) subject to the other provisions of Section VIII, takes

into consideration the economic requirements and situation of

those stations having relatively few commercial announcements

and a relatively greater percentage of sustaining programs,

(footnote continued on next page )

3la

Appendix B

are unable to agree on a fee, the latter may apply to the

United States District Court for the Southern District of

New York for determination of a ‘‘reasonable fee.’’ In

such proceedings, ASCAP bears the burden of establishing

the reasonableness of the fee it requests.

Finally, ASCAP’s licensing authority is not exclusive.

The 1950 decree provides that music users may bypass

with the objective that such stations shall have a genuine eco-

nomic choice between per program and blanket licenses ;

the prospective licensee to negotiate tor a blanket license prior

to negotiating for a per program license.

VIII. Defendant ASCAP, in fixing its fees for the licensing

of compositions in the ASCAP repertory, is hereby ordered and

directed to use its best efforts to avoid any discrimination among

the respective fees fixed for the various types of licenses which

would deprive the licensees or prospective licensees of a genuine

choice from among such various types of licenses.

IX. (A) Defendant ASCAP shall, upon receipt of a

written application for a license for the right of public perform-

ance of any, some or all of the compositions in the ASCAP

repertory, advise the applicant in writing of the fee which it

deems reasonable for the license requested. If the parties are

unable to agree upon a reasonable fee within sixty (60) days

from the date when such application is received by ASCAP, the

applicant therefor may forthwith apply to this Court for the

determination of a reasonable fee and ASCAP shall, upon receipt

of notice of the filing of such application, promptly give notice

thereof to the Attorney General. In any such proceeding the

burden of proof shall be on ASCP to establish the reasonable-

ness of the fee requested by it. Pending the completion of any

such negotiations or proceedings, the applicant shall have the

right to use any, some or all of the compositions in the ASCAP

repertory to which its application pertains. without payment of

any fee or other compensation, but subject to the provisions of

Sub-section (B) hereof, and to the final order or judgment

entered by this Court in such proceeding . . .

32a

Appendix B

ASCAP entirely, and negotiate for a license directly with

the composer or publisher holding the copyright.‘

Under the terms of a consent decree entered in 1966 in

United States v. BMI (S.D.N.Y.), BMI is required to offer

a per-program license in addition to a blanket license. The

difference in the terms of these licenses must be justified

by ‘‘applicable business factors.’ Although the form of

the BMI decree differs from that of the ASCAP decree,

4. The Decree provides:

IV. Defendant ASCAP is hereby enjoined and restrained

from:

(A) Holding, acquiring, licensing, enforcing, or negotiat-

ing concerning any rights in copyrighted musical compositions

other than rights of public performance on a non-exclusive

basis ;

(B) Limiting, restricting, oi interfering with the right of

any member to issue to a user nonexclusive licenses for rights

of public perfoeriuance ;

5. The BMI consent decree provides in part:

(B) Defendant shall, upon the request of any unlicensed

broadcaster, license the rights publicly to perform its repertory

by broadcasting on either a per program or per programming

period basis, at defendant's option. The fee for this license shall

relate only to programs (including announcements), or to pro-

gramming periods, during which a licensed composition is per-

formed. The fee shall be expressed, at defendant's option, either

(1) in dollars, (2) as a percentage of the revenue which the

broadcaster received for the use of its broadcasting facilities or

(3) in the case of sustaining programs or programming periods,

as a percentage of the applicable card rate had the program or

programming period been commercially sponsored. In the event

defendant offers to license broadcasters on bases in addition to

a per program or per programming period basis, defendant shall

act in good faith so that there shall be a relationship between such

per program or such per programming period basis and such

other bases, justifiable by applicable business factors including

availability, so that there will be no frustration of the purpose

of this section to afford broadcasters alternative bases of license

compensation.

= —

33a

Appendix B

the parties have stipulated that CBS could secure direct

licenses from BMI affiliates with the same ease or difficulty,

as the case may be, as from ASCAP members. (CX 3)

C. CBS’ Complaint

CBS does not allege that ASCAP and BMI have violated

the terms of the consent decrees. It claims, rather, that the

licensing alternatives which the decrees specify are not flex-

ible enough to meet its needs, and are not realistically avail-

able to it. Thus, CBS’ complaint charges that the blanket

license ‘‘compels’’ it to pay performance royalties with

respect to television programs which use no music and

that the per-program license requires it to pay the same

royalty for a program which uses a single copyrighted com-

position as for one which uses many. (Complaint 914, 19).

In other words, CBS asserts that defendants are ‘using

the leverage inherent in [their] copyright pool to insist

that plaintiff pay royalties on a basis which does not bear

any relationship to the amount of music performed.”’

(Complaint {19) As to the third alternative specified in the

consent decrees—the possibility of bypassing ASCAP and

BMI entirely and seeking licenses for the specific composi-

tions it wishes to perform directly from the copyright pro-

prietors—CBS alleges that any attempt by it ‘‘to acquire

such a large body of rights from the [individual copyright

proprietors | . would be wholly impracticable . . .”

(715)

CBS’ disenchantment with the blanket licensing system

takes form in several legal claims: first, that the writer

and publisher menibers of ASCAP and BMI have combined

34a

Appendix B

through their common licensing organizations to eliminate

price competition among themselves and, by pooling the

grant of their respective licenses through ASCAP and

BMI, to fix the price which a television network must pay

to secure the rights ; second, that ASCAP and BMI insist on

granting only blanket licenses and have therefore imposed

an unlawful tie-in, in that CBS is required to purchase the

rights to music it does not want to buy in order to secure

the rights to music it does want; third, that by forming

pools of music and requiring CBS to deal with the common

licensing agent of the pools, the writer and publisher mem-

bers end affiliates of ASCAP and BMI are engaging in a

concerted refusal to deal directly with CBS; fourth, that

through ASCAP and BMI the writers and publishers are

guilty of monopolization, both attempted and achieved;

and fifth, that the activities described constitute copyright

misuse.

Despite this rather imposing line-up of charges, the

central issue in the case is not complex. The essence of

CBS’ claim is that ASCAP and BMI are illegal combina-

tions whose purpose and effect is to exact royalties from

CBS for music it does not wish to license. The validity of

the claim turns on whether CBS is in fact compelled to take

a blanket license from the licensing organizations in order

to secure the performance rights it needs. ASCAP and

BMI contend that CBS is not compelled to do so, but has,

in common with the ABC and NBC television networks and

virtually all radio broadcasters, found it most convenient to

license music by the blanket method. Defendants argue

that if CBS no longer wishes to secure performance rights

35a

Appendia B

through centralized agents such as ASCAP and BML, it can

obtain the necessary rights directly from the individual

members and affiliates of ASCAP and BMI by negotiating

with them for performance rights to the particular composi-

tions it wants. As defendants view the case, if CBS is to

prevail it must prove that direct licensing with members of

the alleged combination is an unfeasible alternative to the

blanket license, Proof that licenses could not be obtained

directly from copyright proprietors, despite the fact that

ASCAP and BMI are required by consent decrees to permit

their members and affiliates to license their compositions to

users directly, would support the inference that defendants

have formed illegal combinations in order to foreclose com-

petition in the market for performanee rights to music for

network use. Conversely, proof that direct licensing is a

feasible alternative method by which CBS could satisfy its

musi¢ needs would undercut its claims that copyright pro-

prietors have combined to monopolize the market for per-

formance rights and have used their leverage to fix prices

and impose unlawful tie-ins.

CBS vigorously disagrees with this view of the case.

It argues, as though it could have moved for summary

judgment years ago, that ASCAP and BMI are guilty of

per se violations of the antitrust laws because the blanket

licensing system, which is ‘he only method by which CBS

and the other networks have ever licensed performance

rights, has ‘‘thoroughly eliminated’’ price competition

among copyright owners as a matter of historical fact.

(CBS Post-Trial Brief at 15) CBS views the question of

the feasibility of direct licensing as irrelevant to the issue

36a

Appendiz B

whether defendants have restrained trade. It argues that

the sole questions to be determined are (1) whether defend-

ante’ restraint is justified or reasonable in view of the

unique economic setting of the music licensing market; and

(2) whether licensing can be accomplished on a more com-

petitive basis. We find CBS’ analysis unpersuasive.

Nevertheless, we set forth our views on the questions CBS

raises because of their central importance to the case. To

do this, we must retrace some of the steps taken to define

the issues prior to the trial.

II.

The Issue Presented for Decision

A. ASCAP’s Motion for Summary Judgment

At an earlier stage in the litigation ASCAP moved for

summary judgment, relying principally on the decision in

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

Cir. 1967), cert. denied, 389 U.S. 1045, 88 S.Ct. 761, 19

L.Ed.2d 838 (1968). In K-91 several members of ASCAP

sued a radio broadcaster for infringement. The broad-

caster admitted the infringement but defended on grounds

similar to those asserted by CBS: that ASCAP is an un-

lawful combination engaged in price-fixing and block-book-

ing of its members’ compositions. In rejecting the claims,

the Ninth Circuit observed that ASCAP does not fix prices

because, under the 1950 consent decree, the United States

District Court for the Southern District of New York is

the ultimate price-fixing authority in the event of disagree-

ment as to the reasonableness of ASCAP’s fees. As to the

other cliims, the court observed:

Soe we ee

ee ee ee

37a

Appendia B

‘*No contention is made here that ASCAP’s actual

activities do not comply with the decree. In short, we

think that as a potential combination in restraint of

trade, ASCAP has been ‘disinfected’ by the decree.

There is an additional reason why the activities

disclosed by this record do not violate the antitrust

laws. ASCAP’s licensing authority is not exclusive.

The right of the individual composer, author or pub-

lisher to make his own arrangements with prospective

licensees, and the right of such prospective licensees to

seek individual arrangements, are fully preserved [by

the 1950 deeree].’’ 372 F.2d at 4,

Although we agreed with the K-91 court, and continue to

agree, that the activities of ASCAP and BMI are not illegal

per se, we denied ASCAP’s motion for summary judgment

because of a critical difference between the ease presented

in K-91 and the one at hand. In K-91 the parties stipulated

that it would be virtually impossible for broadeasters and

ments for each radio performance of a copyrighted com-

position,® and no proposal was made to the court of a prac-

6. The United States adopted this position in its Memorandum

of Amicus Curiae submitted in connection with the petition for writ

of certiorari to the Supreme Court of the United States in K-97:

... There are over 4,100 AM and 1,744 FM broadcasting sta-

tions located in every part of the United States (FCC Ann.Rep.,

pp. 106, 110 (1966) ). Most of these stations broadcast recorded

music for a substantial part of their operating day. They may

acquire ownership of any recording they wish, and in the present

state of technology there appears to be no effective means by

which the enormous number of separate performances broadcast

each year by commercial stations across the nation can be ac-

counted for by copyright holders. Nor is it feasible for these

stations to deal on a “per piece” basis with the thousands of indi-

vidual copyright holders across the country in order lawfully to

(footnote continued on next page)

38a

Appendix B

ticable alternative to blanket and per-program licenses. In

contrast to K-91, CBS’ claims are premised on the prac-

ticability of alternatives to the system now in effect. As

noted earlier, CBS seeks an injunction either enjoining

ASCAP and BMI even from offering blanket licenses or,

in the alternative, and preferably, establishing what CBS

calls a ‘‘per-use’’ system, by which ASCAP and BMI

(rather than individual copyright owners) would be re-

quired to license individual compositions in accordance with

a schedule of fees under court supervision.’ Moreover, far

exploit recorded music, for the value of the right to broadcast

a single performance of one recorded composition is far less than

the cost of negotiating a separate license. It would appear, there-

fore, that there must be some form of centralized licensing system

which serves the mutual interests of copyright holders and of

music users, and which enables the marketing of performing

rights for recorded nuusic to be effectively accomplished. (Mem-

orandum at 9-10)

7. Under the “per-use” system proposed by CBS, it would con-

tinue to license its music through ASCAP and BML, but in a substan-

tially different way than it does under the blanket license. CBS

would pay ASCAP or BMI a specified fee for each performance of

a composition in the | (the “per-use reservoir”), plus an adminis-

trative fee. The fee for each use would be fixed in a schedule reflect-

ing the nature of the use (theme, background or feature use) and

other appropriate factors such as duration of use, or the popularity of

the composition. Thus, the fee schedule would likely provide differ-

ent prices for otherwise comparable uses of particular compositions.

If the fee schedule could not be fixed by agreement between CBS and

defendants, it would be set by the court. | . i

Each copyright proprietor would have the right to “withdraw

any of his works from the per-use reservoir on reasonable notice or

at periodic intervals (e. g. quarterly). However, the right of with-

drawal would not extend to spontaneous or other unplanned uses, nor

to music which was filmed or taped prior to withdrawal even though

the performance occurred after withdrawal. CBS and its producers

would remain free to negotiate a license for a composition directly

from the copyright proprietor regardless whether it is in the reservoir

or has been withdrawn. The per-use rate schedule would be adjusted

at periodic intervals to reflect prices negotiated in direct licensing

transactions.

ee ee ee eee

39a

Appendia B

from being a stipulated fact, the impracticability of CBS’

‘*bypassing’’ ASCAP and BMI to secure licenses directly

from copyright proprietors is the key factual issue in the

ease. Accordingly, we held that the feasibility of less

restrictive alternatives to the blanket licensing system pre-

sented a genuine issue as to a material fact in the case and

denied summary judgment to ASCAP.

Subsequent to determination of ASCAP’s motion and

in accordance with our holding, we ordered trial of the

following specified issues:

‘*(i) Whether defendants’ conduct constitutes an ac-

tionable restraint of trade and compels the plain-

tiff as alleged in the complaint;

(ii) Whether, if such restraint or compulsion exists, it

is reasonable and justified or whether it may he

achieved by less anticompetitive means.’’

B. CBS’ “Per Se’’ Contention

Despite our earlier holding that the activities of ASCAP

and BMI are to be judged by the rule of reason and the

specification of the issues to be tried in light of that holding,

CBS now takes the position that the primary question

presented for determination is whether the present system

can be amended to operate on a more competitive basis. As

noted earlier, it argues as to the first issue, that it has estab-

lished an illegal restraint of trade as a matter of law be-

eause the blanket licensing arrangement has ‘‘thoroughly

eliminated”’ price competition among copyright owners as

a matter of historical fact. (CBS Post-Trial Brief at 15)

Coming after an eight week trial and the accumulation of

40a

Appendix B

a bulky factual record, the timing of this contention is un-

usual. For the reasons stated below, we find it to be un-

meritorious as well.

In support of its contention that ASCAP and BMI are

illegal combinations merely because they offer blanket

licenses, CBS cites cases in which sellers agreed among

themselves as to the prices to be charged buyers for their

products. See, e.g., United States v. Socony-Vacuum Oil

Co., Inc., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940) ;

United States v. Trenton Potteries Co., 273 U.S. 392, 47

S.Ct. 377, 71 L.Ed. 700 (1927). The cases are inapposite.

Unlike the plaintiffs in the cited cases, CBS does not claim

that the individual members and affiliates (‘‘sellers’’) of

ASCAP and BMI have agreed among themselves as to the

prices to be charged for the particular ‘*products’’ (com-

positions) offered by each of them. It makes the very dif-

ferent claim that a combination of individual sellers offer-

ing the entire pool of their products through a common

sales agent at a negotiated package price is per se illegal,

regardless whether the sellers are willing to sell their

products on an individual basis.

The claim fails as a matter of law. In Automatic Radio

Co.. Inc. v. Hazeltine Research, Inc., 339 U.S. 827, 70 S.Ct.

894, 94 L.Ed. 1312 (1950), the parties entered into an agree-

ment by which Automatic Radio acquired a license for a

ten year term to incorporate into its products any or all of

several hundred patents held by Hazeltine. Automatic

Radio was not obligated to use any of the patents in the

manufacture of its products, but agreed in any event to pay

Hazeltine royalties based on a percentage of its total sales.

om = —

4la

Appendia B

Automatic argued that the terms of the license constituted

per se patent misuse and an illegal tying arrangement be-

cause the agreement exacted payment of a royalty on all

sales whether or not its products used the patents, and in

effect required it to purchase licenses for products for

which it needed no license as well as for those which did.

In rejecting the argument, the Court stated:

‘*We cannot say that payment of royalties according to

an agreed percentage of the licensee’s sales is unrea-

sonable. Sound business judgment could indicate that

such payment represents the most convenient method

of fixing the business value of the privileges granted

by the licensing agreement. We are not unmindful that

convenience cannot justify an extension of the mo-

noploy [sic] of the patent. But as we have already

indicated, there is in this royalty provision no inherent

extension of the monopoly of the patent. Petitioner

cannot complain because it must pay royalties whether

it uses Hazeltine patents or not. What it acquired by

the agreement into which it entered was the privilege

to use any or all the patents and developments as it

desired to use them. If it chooses to use none of them,

it has nevertheless contracted to pay for the privilege

of using existing patents plus any developments result-

ing from respondent’s continuous research. We hold

that in licensing the use of patents to one engaged in a

related enterprise, it is not per se a misuse of patents

to measure the consideration by a percentage of the

licensee’s sales.’’ 339 U.S. at 834, 70 S.Ct. at 898 (cita-

tions omitted).

In Zenith Radio Corp. v. Hazeltine Research, Inc., 395

U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969) the Court

429

Appendiz B

refined the standards by which the validity of package li-

censes are to be judged. At issue in that case was the

propriety of an injunction entered by the district court

enjoining Hazeltine from:

‘*A. Conditioning directly or indirectly the grant of a

license to... [Zenith] . . . under any domestic patent

upon the taking of a license under any other patent

or upon the paying of royalties on the manufacture,

use or sale of apparatus not covered by such patent.”’

395 U.S. at 133-34, 89 S.Ct. at 1582 (emphasis in

original).

The quoted provision was directed at Hazeltine’s proven

policy of insisting upon acceptance of iis standard five-year

package license agreement covering some 500 patents, and

reserving royalties based on Zenith’s total radio and tele-

vision sales whether or not the licensed patents were actu-

ally used in the products manufactured. The Court of

Appeals had stricken the last clause of the quoted para-

graph, relying on Automatic Radio for the proposition that

conditioning the license upon payment of royalties on un-

patented products was not misuse of the patent. The Su-

preme Court disapproved this construction of its earlier

decision. It distinguished between the situation presented

in Automatic Radio, in which the parties agreed on a pack-

age license ‘‘as a convenient method designed by the

parties to avoid determining whether each radio receiver

embodied [a Hazeltine] patent,’’ and the situation in

Zenith, where the patent holder compelled the licensee to

choose between a package license conditioned on the pay-

ment of royalties on unpatented products, or no license at

te ee en ee ee Ee ek Ba oo ee ee ee

43a

Appendix B

all. 395 U.S. at 135-37, 89 S.Ct. 1562.° In other words, the

critical difference between an illegal licensing arrangement

and a legal one is the fact of coercion or compulsion by the

licensor.

We disagree with CBS that such compulsion inheres

in the present licensing system as regulated by the consent

decrees and that defendants are therefore guilty of per se

violations. As noted earlier, CBS makes no claim that

either ASCAP or BMI has violated any provision of the

consent decrees. The terms of the decrees do not by any

construction suggest that CBS is in fact compelled to take

a blanket license. To the contrary, ASCAP and BMI are

required to offer per program licenses under which a fee

is charged only with respect to programs in which a com-

position within the repertory has been performed; and to

structure the fees for blanket and per program licenses so

that the user has a genuine choice between them. Apart

from the licenses available from ASCAP and BMI the

decrees leave a music user free to obtain licenses directly

from copyright owners. This factor alone markedly dis-

tinguishes the present case from Zenith, in which Hazel-

)

8. The C. ‘rt amplified the distinction as follows:

If the licensee negotiates for “the privilege to use any or all of

the patents and developments as [he] desire[s] to use them”

he cannot complain that he must pay royalties if he chooses to

use none of them . . . But we do not read Automatic Radio to

authorize the patentee to use the power of his patent to insist on

a total-sales royalty and to override protestations of the licensee

that some of his products are unsuited to the patent...

We also think patent misuse inheres in a patentee’s insistence

on a percentage-of-sales royalty, regardless of use, and his rejec-

tion of licensee proposals to pay only for actual use. Unques-

tionably, a licensee must pay if he uses the patent. Equally,

however, he may insist by ying only for use, and not on the

basis of total sales . . . 395 U.S. at 139, 89 S.Ct. at 1585.

44a

Appendix B

tine, as the sole supplier of the patents in issue, had, for

all practical purposes, unlimited leverage in bargaining

the terms of any license to them.

C. CBS’ Theoru of the Burden of Proof

Taking a different tack, CBS also argues that ‘‘it is

clear that [ASCAP and BMI] insist on licensing exclusive-

ly on a blanket basis’’ and that because they insist on such

an ‘‘inherently restrictive’’ method of sale, they have the

burden of proving the availability in the market place of

acceptable substitutes, i. e., that CBS could obtain direct

licenses sufficient to meet its needs from copyright pro-

prietors. (CBS Post-Trial Brief at 15, 26-27) Neither the

facts nor the law support the argument. As outlined later

in this opinion, the evidence does not establish that ASCAP

and BMI insist or have ever insisted on licensing on a

blanket basis; and, of course, if they did, they would flatly

violate the terms of the consent decrees.

In any event, the argument fails as a matter of law.

CBS cites a number of cases for the proposition that a de-

fendant who argues that the plaintiff can avoid injury by

obtaining a substitute product bears the burden of proving

such an assertion. See, 7V Signal Co. of Aberdeen vy.

American Telephone & Telegraph Co., 462 F.2d 1256 (8th

Cir. 1972) ; Fontana Aviation, Inc. v. Beech Aircraft Corp.,

432 F.2d 1080 (7th Cir. 1970), cert. denied, 401 U.S. 923,

91 S.Ct. 872, 27 L.Ed.2d 826 (1971); Gamceo, Inc. v. Provi-

dence Fruit & Produce Bldg., Inc., 194 F.2d 484 (1st Cir.),

cert. denied sub nom., Providence Fruit d& Produce Bldg.,

Inc. v. Gamco, Inc., 344 U.S. 817, 73 S.Ct. 11, 97 L.Ed. 636

(1952) ; Stanton v. Texaco, Inc., 289 F. Supp. 884 (D.R.I.

1968).

45a

Appendix B

To secure injunctive relief in a private antitrust suit,

the plaintiff must prove an actual violation of the antitrust

laws or that such violation is impending and that as a result

the plaintiff is threatened with loss or injury. Zenith Radio

Crop. [sic] v. Hazeltine Research, Inc., supra, and Credit

Bureau Reports, Inc. v. Retail Credit Co., 476 F.2d 989 (5th

Cir. 1973). In the cases on which CBS relies, the plaintiff

had indisputably established the first element, i.e., that the

defendant had illegally denicd him something he wished

to purchase, for example, space in a fruit market, access to

telephone poles for a cable TV installation, or an aircraft

dealership. The defendant in those cases argued that the

plaintiff had failed to establish the second element of its

claim—injury or the threat of injury—because he had not

proven that he could not avoid injury simply by purchas’ ug

a substitute product elsewhere in the market. The e urt in

each case held that a plaintiff does not have the burden of

proving the non-existence of suitable alternatives in order

to prove injury or the threat of injury, particularly when

it is clear that no substitute will have the unique attributes

of the product which the defendant denied the plaintiff.

However, in none of the cases did the court suggest that the

plaintiff does not have the burden of proving the first ele-

ment: the restraint of trade itself.

Accordingly, the validity of CBS’ argument that it does

not bear the burden of proving that direct licensing is not

a feasible alternative to the blanket license turns on whether

the issue of ‘‘alternatives’’ relates to the element of re-

straint, or the element of injury. We believe that it relates

to the first factor: that is whether ASCAP and BMI have

restrained trade. In the cases just discussed, plaintiff al-

46a

Appendix B

leged that the defendant would not sell him something

which he wanted to purchase, and the defendant argued

that the plaintiff was not injured by the refusal because

market substitutes were available, The present case poses

an entirely different claim. The alleged restraint of trade

is not that CBS is excluded from purchasing the services

offered by ASCAP and BMI, and told to find substitutes

elsewhere; but that (1) they allegedly offer only blanket

licenses, which CBS says it does not want; (2) have com-

bined to make any effort to obtain an alternative form of

license (such as direct licensing) unfeasible; and (3) there-

by compel CBS to continue to take a blanket license and

to pay for music which it does not want to buy. Unlike the

situations in the cases on which it relies, CBS does not want

the organizational defendant-seller’s product at all. Far

from spurning ‘‘substitute’’ products, CBS claims that the

lack of a substitute constitutes an alleged restraint of trade.

So much is clear when one considers the nature of the

direct licensing alternative. It is not at all a ‘‘substitute’’

in the sense used in the ‘‘injury-avoidance’’ cases; it is an-

other means of licensing (on an individual basis) the use

of precisely the same music which CBS would perform if

it purchased a blanket license. If direct licensing is realis-

tically available, it would enable CBS to pay only for the

music it uses and for no other music, and would demon-

strate that CBS’ complaint in this action is unjustified.

In sum, we adhere to our earlier conclusion, as embodied

in the pre-trial order, that to prevail here CBS must prove

that defendants’ conduct in combining into ASCAP and

BMI compels CBS to take a blanket license as alleged in

PMA 2 > ms -

47a

Appendia B

the complaint. Proof that direct licensing is not a feasible

alternative to the blanket license is an essential element of

CBS’ claim. on which it accordingly bears the burden of

proof. Conversely, proof that CBS could obtain the nec-

essary performance licenses directly from copyright pro-

prietors would be fatal to its claim that they have pooled

the rights to perform their music in a manner which illegal-

ly restrains trade in those rights. If the restraint is proven,

only then do defendants have the burden of proving that the

restraint is justified by the economic context in which music

licensing for network television use takes place, and cannot

be achieved by less anti-competitive means.

III.

The Stipulation as to Competitive Disadvantage

Prior to trial, the parties executed a stipulation which

states in part:

... There is a portion of the performance rights

to ASCAP music appearing on [CBS] programs as to

which it would be impracticable for [CBS] or such

producers to negotiate for licenses directly with the

owners of the performance rights of said music. [ With-

out limiting the parties’ rights to adduce and offer ad-

ditional proof with respect to any subject, both parties

specifically reserve the right to adduce and offer proof

regarding the reasons for such impracticability.]’’

(CX 2, 113; bracketed portion in original.)

‘Tf [CBS] chose not to have an ASCAP license, the

producers of [CBS] programs did not obtain such

licenses, and [NBC] and [ABC] had such licenses, to

48a

Appendia B

the extent that [CBS] or the producers of [CBS]

programs did not otherwise obtain the performance

rights to the ASCAP music which they desired to use

on [CBS] programming, [CBS] would be at a com-

petitive disadvantage vis-a-vis [NBC] and [ABC].’”

(Id. 915)

CBS argues that, putting aside its proof at trial as to the

impraeticability of the direct licensing alternative, ASCAP

and BMI have ceded the primary issue in the case by stip-

ulating that CBS could not obtain direct licenses for all its

music needs and that consequently, if it dropped its blanket

license, it would be at a competitive disadvantage vis-a-vis

networks which continued to hold such licenses.

We disagree with the contention that defendants have

stipulated the case away. Paragraph 13 does not specify

the ‘‘portion’’ of the compositions in the ASCAP repertory

as to which it would be ‘‘impracticable’’ for CBS to license

directly ; and the extent of ‘‘impracticability’’ is critical to

the feasibility of direct licensing. As detailed later in this

opinion, the evidence establishes that musical compositions

are substantially interchangeable and that for any pro-

posed use there are several, if not scores, of compositions

which are equally suitable. Accordingly, even if CBS had

access to far less than all of the compositions in the ASCAP

and BMI repertories, that would not in itself render direct

licensing unfeasible.

Because a fair reading of Paragraph 13 does not indi-

cate that ASCAP and BMI have admitted the unfeasibility

9. BMI has stipulated with CBS that with respect to the prac-

ticability of CBS’ obtaining direct licenses from BMI writers and

publishers, BMI and CBS are bound by the determination in this case

with respect to the practicability of CBS’ obtaining direct licenses

from ASCAP writers and publishers.

49a

Appendiz B

of direct licensing, Paragraph 15 loses the dispositive force

which CBS attributes to it. It is obvious that CBS might

be at a competitive disadvantage vis-a-vis other networks

if it held no music license. But that fact only raises, but

does not settle, the question of what licensing methods are

available to CBS. We regard the stipulation merely as an

aid to the definition of the issues of the case. The extent

of CBS’s use of music, the kinds of compositions it needs,

and the persons with whom it must deal to negotiate licenses

for them are factors whose relevance to the feasibility of

direct licensing is only suggested by the stipulation, on

which the parties reserved the right to offer proof. The

decision in this case rests on the evidence as to those fac-

tors, not the stipulation itself. Accordingly, we turn to

the question whether CBS is in fact ‘‘compelled”’ as alleged

in the complaint.

IV.

Compulsion: The Quality of the Evidence

Defendants argue that CBS’ case, which alleges the

refusal of the defendants to license on terms which require

CBS to pay only for the music it uses, falters at the thres-

hold because CBS has not shown that it ever made a clear

demand on defendants which they have rebuffed. It is true

that several courts have imposed’ such a requirement in

treble damage cases based on a conspiracy to deprive the

plaintiff of a particular product. See, e.g., Royster Drive-

In Theatres, Inc. v. American Broadcasting-Paramount

Theaters, Inc., 268 F.2d 246, 251 (2d Cir.), cert. denied, 361

U.S. 885, 80 S.Ct. 156, 4 L.Ed.2d 121 (1959) ; Webster Rose-

50a

Appendiz B

wood Corp. v. Schine Chain Theatres, Inc., 263 F.2d 533,

536 (2d Cir.), cert. denied, 360 U.S. 912, 79 S.Ct. 1296, 3

L.Ed.2d 1261 (1959); Milwaukee Towne Corp. v. Loew’s,

Inc., 190 F.2d 561 (7th Cir. 1951), cert. denied, 342 U.S. 909,

72 S.Ct. 303, 96 L.Ed. 680 (1952). However, the reqnire-

ment has not be [sic] imposed in any case of which we are

aware, when the relief sought is an injunction rather than

damages. Cf. Zenith Radio Corp. v. Hazeltine, supra;

Credit Bureau Reports, Inc. v. Retail Credit Co., supra.

Although we agree with CBS that it is not required

as a condition to suit to have been unequivocally refused

the kind of license it now seeks, defendants’ argument

highlights the unusual nature of CBS’ claim and the kind

of evidence on which it relies. CBS does not claim that it

is compelled to take a blanket license because ASCAP and

BMI, or individual copyright proprietors, have actually

refused or threatened to refuse to negotiate with it for al-

ternative methods of licensing. Instead, its position is that

ASCAP and BMI would refuse to negotiate new forms of

licenses whose fees are based on actual music use; and

that individual copyright proprietors would refuse to deal

with it on a direct licensing basis, or at least make it such

a difficult proposition that CBS would be forced to resume

its blanket license. Although proof of what might or might

not occur under hypothetical circumstances in the future

is customary when the plaintiff in a private antitrust action

seeks to establish a threat of injury, CbS relies heavily on

hypothetical proof in order to establish the existence of the

restraint itself—the nonavailability of direct licensing.

The other side of the coin just described is that CBS

has made no effort to obtain the kinds of licenses it now

Sla

Appendix B

complains defendants are unwilling to grant. Although

the absence of such evidence does not establish that CBS

is not compelled to take a blanket license, we nevertheless

regard it as highly relevant to that issue.

The Break-Up of an Amicable Marriage

Until the institution of the present suit CBS appears

to have lived quite happily with the blanket arrangement

which it now disavows. Since 1929 it has obtained

ASCAP blanket licenses for its various broadcast opera-

tions, the earliest one purchased on behalf of a radio sta-

tion; and when CBS and other broadcasters established

BM1 in 1939, they agreed to take blanket licenses. Since its

establishment in 1946, the CBS television network (CTN)

has continuously held blanket licenses from ASCAP and

BMI. Since 1950, CBS’ negotiations with ASCAP for li-

censes for its television network have of course been con-

ducted within the framework of the amended consent de-

cree. Although, as noted earlier, the terms of the 1950

decree prohibit ASCAP from negotiating a blanket license

prior to determining whether the user would prefer a per-

program license,“’° CBS has never applied for relief under

the decree complaining that ASCAP insisted on blanket

licenses. Nor has the court ever been required to set a

‘*reasonable fee’’ for the blanket licenses negotiated by the

parties from time to time. CBS has never negotiated or

held a per-program license from ASCAP or BMI for its

television network and has never attempted to fullfill its

10. See note 3, supra.

52a

Appenha B

music requirements by bypassing either organization and

securmg performance rights directly from copyright

owners.

This suit did not follow a breakdown in negotiations

for a new form vf license, but for a renewal of CBS’

blanket licerse from BMI. In April, 1969, CBS and

ASCAP submitted for court approval agreements providing

for final license fees as adjusted for 1969 and several prior

years. Because the payments provided for in the agree-

ments would have had the effect of sharply widening the

historical ratio between BMI and ASCAP fees from CBS,

BMI’s President, Edward Cramer, protested to Donald

Sipes, CBS’ Vice President in charge of business affairs

for the network, that BMI would insist on maintaining

parity with ASCAP. After several meetings between

Sipes and Cramer in 1969 during which the latter was un-

able to negotiate higher fees, BMI gave notice on October

29, 1969 that it was exercising its right under the consent

decree to terminate CBS’ license, effective January 1,

1970.

CBS did not apply for relief under the decree. Instead,

on December 19, 1969, more than a month and a half after

BMI’s notice of termination, and less than two weeks be-

fore termination would become effective, the President of

the CBS television network, Robert D. Wood, wrote to

ASCAP and BMI requesting each of them to ‘‘promptly

submit to us the terms upon which you would be willing

to grant a new performance rights license which will pro-

vide, effective January 1, 1970, for payments measured by

the actual use of your music.’’ This was the first such

demand CBS had made. By letter dated December 23,

53a

Appendia B

1969, Herman Finkelstein, ASCAP’s general counsel, re-

plied that ASCAP would consider the proposal at its next

Beard of Directors meeting on January 29, 1970; that it

regarded CBS’ letter as an application for a license in

accordance with the consent decree; that CBS would in

the meantime have an interim license for 60 days ‘‘at rates

and terms to be negotiated, or determined ultimately by

the court;’’ and that representatives of ASCAP would

meet with CBS counsel on January 12, 1970 to discuss the

application further. (PX 201)

By letter dated December 23, 1969 Cramer replied to

CBS’ request on behalf of BMI and stated that ‘‘The BMI

Consent Decree provides for several alternative licenses

and we are ready to explore any of these with you.’’ (PX

202) CBS did not, however, pursue the matter further.

Instead it commenced this lawsuit a week later, on De-

cember 31, 1969.

Neither the history of the relationship between the

parties nor the events leading to this action remotely sug-

gest that CBS has been compelled to take a blanket license

it did not want. Indeed, CBS does not even appear to have

seriously considered available alternatives to the blanket

license prior to the commencement of suit. CBS’ Vice

President in charge of business affairs and planning for

the network, Donald Sipes, was its principal witness as to

the undesirability of blanket and per program licenses,

and the need for a license under which the fee would be

based strictly on actual use. Sipes testified that he first

decided to explore alternatives to the blanket license some-

time in 1968 or 1969. Although he was almost completely

d4a

Appendia B

unacquainted with the intricacies of music licensing, he

spoke to only three people in the course of his exploration.

Two of these, Robert Evans and John Appel were house ’

counsel for CBS. Sipes spoke to them only in their ca-

pacity as counsel, and did not seek their advice on the

business aspects of licensing. The third person Sipes con-

sulted was Emil Poklitar, the CBS employee in charge of

the clerical personnel who process music logs and case

sheets submitted by program producers to be sure the

necessary rights have been cleared. Poklitar is not a

business man and his duties involve a narrow portion of

the music licensing spectrum.

Despite Sipes’ lack of expertise, neither he nor his

colleagues at CBS consulted any music writers, publishers,

television producers or any other expert in the field about

possible alternatives to the blanket license. (Tr. 151, 204,

358, 371) No one at CBS ever conducted a feasibility study

about presently available or proposed methods of licensing

the music to be performed on its television network. (Tr.

156-57) Indeed, Sipes testified that he did not even speak

to other CBS executives about alternatives to the blanket

license; he considered the alternatives entirely on his own

initiative. (Tr. 180, 369) In sum, CBS thought very little

indeed about revising its licensing practices prior to Robert

Wood’s ‘‘demand’’ letter to ASCAP and BMI just prior to

the commencement of this suit. The evidence described

hardly supports CBS’ contention that it has been com-

pelled to take a blanket license. To the contrary, it sug-

gests that CBS did not even view music licensing as a

business problem until immediately prior to suit.

55a

Appendia B

VI.

The Claim That the Structure of

the Market Bars Direct Licensing

In the absence of direct evidence that ASCAP and BMI

and their members and affiliates have refused to negotiate

licenses which reflect actual music use, CBS’ claim that it

is compelled to take a blanket license hinges on proof that

the direct licensing alternative which exists in theory un-

der the consent decrees is not a viable method for securing

the necessary performance rights.

CBS claims that it established at trial that the defend-

ants have structured the market in such a way as to lock

it into a blanket licensing arrangement and to make any

attempt to license its music needs directly so prohibitively

risky as to preclude it even from trying. The basic ele-

ments of this claim are illustrated by the following syl-

logism: First, it would be uneconomic for CBS to attempt

direct dealing while it still holds a blanket license, because

it would then be paying twice for the same music: that is,

since the blanket license fee covers unlimited use of the

ASCAP or BMI repertory, direct licensing transactions

would involve the purchase of additional licenses for music

already covered under the blanket arrangement. Second,

because copyright proprietors and television networks have

never engaged in direct dealing, the transactional ma-

chinery necessary to negotiate and clear direct licenses

between CBS program producers and the large number of

individual copyright proprietors has not been developed;

and the absence of such machinery creates a ‘‘barrier’’ to

direct licensing. Third, because the blanket license system

56a

Appendiz B

insulates copyright proprietors from price competition

among themselves, they have no incentive to create the

necessary machinery, and indeed would refuse to deal with

CBS if it attempted to license its needs directly. Fourth,

the risk of a refusal to deal is particularly acute in relation

to CBS’ present inventory of programs and films, which

contains a large number of performances of copyrighted

musi¢e whose initial runs on television were licensed under

a blanket license. If CBS dropped its blanket license, it

would need to seek direct licenses for the music contained

in any programs which it plans to rerun because a rerun

constitutes a performance for profit. Accordingly, the

CBS inventory would be vulnerable to ‘‘hold-ups’’ by copy-

r.zht proprietors who could either refuse to license their

music at all, or exact a premium price for it.

In sum, CBS claims to have established that because

there is at present (1) no market machinery for direct

dealing; (2) no expectation that it will be created; and (3)

reason to believe that proprietors would refuse to deal

with CBS, particularly with regard to programs in its

existing inventory which it wishes to rerun, direct licensing

is not a feasible alternative and defendants illegally com-

pel CBS to continue to take a blanket license. To under-

stand the evidence relating to these claims, it is necessary

first to describe the nature and extent of CBS’ use of music.

VIL.

CBS’ Use of Music

Music is used on network television in three principal

ways: as theme, background or feature music. Theme

music is the music used to introduce and close a program.

57a

Appendix B 4

Background music is used to complement action on the

screen. Feature music is music used as ‘‘the main focus

of audience attention’? (PX 469); for example, a per-

former singing a song on a variety show. Occasionally,

however, well-known compositions suitable for feature use

may be used as background music, for example, ‘‘Tea for

Two’’ as background to a tea party scene. CBS concedes

that it would be a simple matter for it to obtain direct li-

censes for most of the theme and background music it uses,

and that the key to the feasibility of the direct licensing

method is whether it can obtain licenses for the feature

music and some of the background music it needs. To

understand why this is so, some familiarity with the man-

ner in which television programs are produced is necessary.

As noted earlier, CBS itself produces virtually none of

its ‘entertainment’? programming. Apart from the news,

public affairs, sports and special events programs—which

CBS does produce and which make little use of music—

the bulk of the programs broadcast over the network are

acquired from independent program production companies,

or ‘‘packagers.’’ Some of the packagers are well-known

Hollywood ‘‘majors,’’ such as MGM, Universal and Para-

mount. Variety shows and some of the filmed serials are

produced by smaller production companies, which are

sometimes owned by the star of the show. For example,

the ‘‘Mary Tyler Moore Show”? is produced by MTM Com-

pany, Ms. Moore’s own; and ‘‘The Carol Burnett Show’’

is produced by her husband’s company.

Ordinarily, the music used on entertainment serials is

almost exclusively theme and background music composed

especially for the program. For example, after the pro-

58a

Appendiz B

gram has been filmed or taped, the producer typically hires

a background composer to view the film, decide which

action requires musical background, score the music and

arrange and conduct the music scored. The producer pays

the writer a fee for this work and acquires th» pyright

from him, as an ‘‘employee for hire.’’ “her oeke is cre-

ated the same way, but the same musi — | . ased

from week to week over the life of the se ~

The producers of most of CBS’ reguis © ror ams own

publishing subsidiaries which acquire the ~»yrights for

the music which has been specially composed for the pro-

gram. For example, CBS itself owns Apri Music, which

in turn owns the rights to the backgwrownd music used in

‘‘Gunsmoke.’’ The producer of ‘‘The Care! Burnett Show’”’

owns Burngood Music and Jocar, which acewire the music

specially created for that show such as background music

for comedy sketches. Major studios, such as Universal,

own major publishing houses, euch as Leeds Music, which

in turn own the rights to music created for Universal’s

television programs. The publishing subsidiaries receive

royalty distributions from ASCAP or BMI for perform-

ance of music on the shows created by their parent com-

pany. The royalties are of course a small fraction of the

amount the producer receives from CBS for the program

package itself. CBS may pay upwards of $200,000. for a

one hour episode of a dramatic serial; the publisher’s per-

formance royalties for that program may amount only to

about $1,500.

This description of the process by which theme and

background musi¢ is created makes clear that CBS can

easily acquire performance rights for such music as part

59a

Appendix B

of the same transaction by which it acquires the program

itself. Because the program production company, or its

publishing subsidiary controls the rights to music specially

created for the program, CBS could license the right to

perform that music at the same time and place as the

overall right to televise the program.

In contrast to theme and background music, feature

music is not usually composed especially for the program.

Rather, it is music which has been previously composed,

and is controlled by a publisher who is not connected with

the program production company. Feature music, and

theme and background music whose copyrights are con-

trolled by an ‘‘outside’’ publisher, cannot of course be

licensed as a part of the overall transaction by which CBS

acquires the program. Instead, in order to obtain rights

to such music, it would be necessary for CBS or the pro-

gram producer to approach the publisher who owns the

rights to the music in question. As noted earlier, it is the

feasibility of obtaining the licenses to this ‘‘outside’’ music

on which the viability of the direct licensing alternate sub-

stantially depends.

In order to establish how much of CBS’ music needs

would require ‘‘outside’’ direct licensing transactions (as

opposed to ‘‘inside’’ transactions with the program pro-

ducer or his publishing affiliate whose feasibility CBS

generally concedes) both sides have introduced into ev-

idence computer runs which they claim establish the ex-

tent of CBS’ music use in the three basic categories. In

general the computer runs and the testimony relating to

music use verify what the average television viewer would

assume. CBS’ news and public affairs programs use vir-

60a

Appendix B

tually no music; the staple situation comedy, crime and

drama series use almost exclusively theme and background

music specially composed for the program; and feature

and background music controlled by outside publishers

not connected with the program producer is used regularly

on a small group of programs: variety shows and variety

specials, sports shows (e. g., football halftime shows), late

night talk shows, and the ‘‘Captain Kangaroo Show.”’

Although the parties are in agreement as to the gen-

eral pattern of CBS’ music use, they differ in their claims

as to precisely how much music CBS uses in each category

and how evenly its use of music is distributed over the

program schedule.

We believe it fruitless and unnecessary to determine

the question whether CBS or defendants have more ac-

curately interpreted the data as to CBS’ use of music. It

is fruitless because, as both sides concede, the data of

record do not permit complete analysis. It is unnecessary

because the validity of the conclusions which the parties

seek to draw does not at all hinge on the few percentage

points which separate the parties. Thus, defendants argue

that the available data show that some 85-90% of CBS’

programs used only ‘‘inside’’ music which could be con-

veniently licensed through the program packager, or no

music at all; and that the music for another 5% of the pro-

grams could be licensed by seeking performance rights

from only one ‘‘outside’’ publisher. According to de-

fendants, only 3-4% of CBS’ schedule is made up of pro-

grams (such as variety shows) which make heavy use of

outside music, requiring licenses from several outside pub-

lishers. Accordingly, defendants argue, CBS could acquire

61a

Appendix B

the necessary performance rights for nearly all of its pro-

gramming without the creation of the ‘‘machinery’’ which

CBS claims (as discussed below) is required to facilitate

transactions between producers and publishers. This as-

sertion is not inconsistent with CBS’ argument that, even

adopting defendants’ figures, direct licensing for the few

programs which do make heavy use of ‘‘outside’’ music

would be impracticable in the absence of ‘‘machinery’’ to

service the large number of transactions which would

required. In short, no matter whose figures are closer t

the truth, the question would remain whether the lack of

‘*machinery’’ destroys the feasibility of direct licensing as

an alternative to the blanket license and constitutes an

illegal restraint of trade.

VIII.

Are There ‘‘Mechanical’’ Obstacles

to Direct Licensing?

A. The Legal Significance of *‘Machinery’’

Prior to trial the parties stipulated that ASCAP mem-

bers and BMI affiliates ‘‘have not established facilities or

procedures’’ for processing requests by music users for

direct licenses for performance rights. (CX 2,CX 3) CBS

argues that the fact that the individual defendants have not

established such ‘‘machinery’’ constitutes a ‘‘barrier’’ to

direct licensing which compels it to take a blanket license.

(CBS Post-Trial Reply Brief at 29) Putting aside the

question of the kind of machinery CBS claims to be nec-

essary and whether its absence does in fact make direct

licensing of outside music unfeasible, we disagree with

62a

Appendix B

CBS that defendants’ mere failure to have created machin-

ery amounts, without more, to an illegal refusal to deal.

(CBS Post-Trial Reply Brief at 27)

As outlined above, CBS has not, in the many years it has

held blanket licenses, indicated a wish to fill its music needs

by means of direct licensing. There is no evidence of sub-

stance that before bringing this suit it ever considered such

an alternative in its own business planning. The only ex-

pression of its dissatisfaction with the blanket system was

the ‘‘demand”’ letter sent by the network President, Robert

Wood, two weeks before the commencement of this suit.

That letter did not even refer to direct licensing, nor of

course to obstacles, such as the lack of ‘‘machinery,’’ which

arguably prevented CBS from engaging in direct dealing

with copyright proprietors. Rather, the letter related only

to CBS’ request for alternative methods of licensing

through ASCAP and BMI. In short, there is no evidence

that CBS gave any thought to the need for machinery, or

noticed its absence, prior to this litigation.

It is simplistic, in view of these facts, to argue that ‘‘by

virtue of [defendants’] preemption of the field, there are

absolutely no facilities in existence for . . . direct licensing

. .”’? (CBS Proposed Findings at 37). The ‘‘field’’ con-

sists of buyers as well as sellers, and by taking a blanket

license for twenty years, CBS (as well as other broadcast-

ers) has ‘‘preempted’’ any need for the machinery whose

absence is now claimed to constitute an antitrust violation.

We are unable to accept the proposition that defendants

have had the obligation to create the framework for a direct

licensing system, particularly in the absence of any indica-

63a

Appendix B

tion that CBS would ever wish to use it. There is no evi-

dence, and indeed CBS does not claim, that defendants have

refrained from creating the necessary machinery for the

purpose of injuring CBS. In these circumstances, the fact

that defendants have so far done nothing to facilitate direct

licensing does not support the conclusion that they are

illegally restraining it.

B. Problems Allegedly Created by the

Lack of ‘‘Machinery’’

Putting aside the question whether the mere absence of

machinery illegally restrains trade in the market for per-

formance rights, CBS has failed to prove that there are

substantial mechanical obstacles to direct licensing. CBS

postulates that under its new proposed licensing system it

would pass on the job of licensing ‘‘outside’’ music to the

production companies. In such a case, inside music would

be conveniently licensed through the program packager and

its publishing subsidiary. However, the producer would

take on the additional job of obtaining rights to the outside

music to be used on the program by contacting the publish-

ers in question (or their agents, as described below) and

dealing for the performance rights.

CBS’ principal witnesses as to the need for machinery

were Robert Wright, associate producer of ‘‘The Carol

Burnett Show,’’ and Edward Vincent, a former staff mem-

ber of several network programs. Wright and Vincent are

in the position of those who would use whatever machinery

is required for direct licensing. In general the testimony

of these witnesses was not persuasive, and their views on

64a

Appendix B

machinery were vague and abstract." (e. g., Tr. 482-83, 500,

687) Three basic claims emerge from their testimony.

First, CBS asserts that the producer in a direct licensing

world would sometimes have difficulty in identifying the

publisher of a given composition in order to approach him

for a license. The argument is based on the fact of life in

the industry that publishers’ catalogs shift as they buy and

sell copyrights, so that the publisher listed on the sheet

music or record label may no longer own the composition

when the producer wants to license it. CBS further claims

that even assuming the producer can locate the publisher,

the negotiations will be beset by confusion because, as de-

fendants concede, music publishers have no established

procedures for dealing with requests for performance li-

censes. Accordingly, the argument goes, direct licensing

would be impracticable until settled ways of negotiating

licenses are developed and publishers train their staffs to

handle licensing. Finally, even assuming the producer can

speak to the publisher in a language he can understand,

CBS claims that difficulty would be caused by provision

in certain contracts between writers and publishers requir-

ing that the writer’s consent be obtained prior to the grant

11. We note in passing that most of the testimony of Wright

and Vincent as to the need for “machinery” related to the peculiar

needs of producers of CBS’ few variety shows, which make unusually

heavy use of outside music and are produced on short production

schedules. CBS did not offer proof as to how the needs of variety

show producers for “machinery” differ from the needs of producers

of programs which use outside music less regularly and in more

modest amounts, and in which speed is not of the essence in the

licensing transaction. Accordingly, even if we found the testimony

of Wright and Vincent to be more persuasive than we do, it would

be of limited value to establish the extent of the “machinery” neces-

sary for shows other than variety shows.

65a

Appendiz B

of a direct license by the publisher. A provision requiring

such consent appears in the form contract of the American

Guild of Authors and Composers (AGAC). CBS claims

that ASCAP’s computer runs of CBS’ music use show that

some 40% of the outside music it uses is written by AGAC

composers, a figure we adopt arguendo; and that the need.

to obtain writer consents for the use of that music would

delay direct licensing transactions and disrupt the tight

production schedules under which some programs are pro-

duced, particularly variety shows.

For the reasons stated below, we find that CBS’ claims

as to the effect of lack of machinery are without merit.

There are two basic flaws in CBS’ general approach. First,

CBS’ premise that it would abruptly cancel its blanket li-

cense and seek to fulfill all its music needs by direct liccns-

ing on the next day (see, e. g., Tr. 463, 633, 1874, 1912-13)

is utterly unrealistic. If CBS took such a course there

might well be problems of the kind just described. But

this would not be proof that defendants have created ob-

stacles which render direct licensing unfeasible. As noted

earlier, nothing in the antitrust laws requires defendants

to maintain well-oiled machinery for direét licensing for the

benefit of CBS. Indeed, there is no support in the record

for the proposition that CBS could even as a matter of in-

ternal business planning, switch over to direct licensing

without a long period of advance preparation. Accordingly,

to presuppose, as CBS does, that the feasibility of the direct

licensing alternative is to be judged literally as of ‘‘tomor-

row’’ miscasts the issue. The proper question, we believe,

is whether such mechanical obstacles as exist could be

66a

Appendiz B

remedied within a reasonable period prior to cancellation of

the blanket license.

The second flaw in CBS’ approach is that it postulates

that new direct licensing machinery would of necessity be

an edifice entirely distinct from the machinery which now

exists for the purpose of licensing other kinds of rights in

music, in which ASCAP and BMI do not deal. As outlined

earlier, the program packager is responsible for obtaining

all rights necessary to televise the program except per-

formance rights, which CBS obtains from ASCAP and

BMI. These rights include ‘‘synch’’ rights, that is, the

rights required for any program which is to be rerun.

Program producers now obtain ‘‘direct’’ licenses for synch

rights from publishers through ‘‘machinery’’ created for

that purpose. Similarly, movie producers obtain from

publishers the rights to record and perform the music they

use, (i. e., ‘*mechanical rights’’ or ‘‘mechanicals’’) and

there is ‘‘machinery’’ for this purpose as well.

Thus, although CBS is literally correct that ‘‘there are

absoluteiy no facilities in existence for the direct licensing

of [performance] rights by music publishers or other pro-

prietors’’ (CBS Proposed Findings at 37), it overstates the

issue to assume that such facilities would have to be created

‘*from scratch’’ (CBS Post-Trial Brief at 40). The narrow

question in the first instance is whether, as ASCAP and

BMI contend, the machinery which publishers and produc-

ers now use to license other kinds of music could be adapted

to facilitate the licensing of performance rights as well.

67a

Appendix B

C. A Look at Other Kinds of Machinery

Apart from television performance rights, other rights

in copyrighted music include motion picture synchroniza-

tion and performance rights, and television synchronization

rights. While ASCAP and BMI do not deal in these rights,

facilities to license these rights directly from copyright

owner to user do exist.

The television synchronization right is the right to

record copyrighted music on the soundtrack of a filmed or

taped program. _Such_rights are required for programs

which are to be rerun, as distinguished from those (such as

sports events or certain ‘‘one-run’’ taped programs) which

are regarded as ‘‘live’’ performances. The grant of TV

**synch”’ rights is almost exclusively brokered through the

facilities of the Harry Fox Agency, Inc., which represents

virtually every major publisher, about 3,500 in all. As out-

lined by Fox’s Managing Director, Albert Berman, and by

Robert Wright and Edward Vincent, who are members of

producers’ staffs, the typical ‘‘synch’’ rights transaction

starts with a telephone call to Fox from the producer or

from Bernard Brody or Mary Williams, synch rights agents

located in Los Angeles who represent producers in their

dealings with Fox. Because Fox has instructions regarding

each publisher’s fee structure, (or, more often, is familiar

with it on the basis of past experience) it is usually able to

quote prices over the telephone for the compositions which

interest the producer. The entire transaction, including

actual issuance of the license, is completed within two to

three days at most. Fox issues several thousand television

68a

Appendiz B

synchronization licenses annually, using a basic staff of

only two employees.

A ‘‘movie rights’’ transaction consists of the licensing

of the performance right and synch right in one package

for use in a theatrical (as distinguished from television)

motion picture. The versatile Fox Ageney also represents

publishers in the licensing of these rights. The negotiation

is similar in form to the TV ‘‘synch”’ rights. As described

by Marion Mingle, the Fox employee who handles movie

rights, producers call or write to Fox requesting price

quotations on a number of compositions. Mingle or her

assistant then telephones the publisher and outlines the

nature of the film and the kind of use which is to be made

of the composition in question, so that he can quote the

price for the right. Generally, the producer either accepts

or rejects the various quotations on the spot; sometimes,

however, he may make a counter-offer which Mingle passes

en to the producer. In general, Mingle can quote prices to

the producer within two days. She and her assistant

license several hundred movies each year.

D. Could Other Kinds of Machinery Help CBS?

As note [sic] earlier, CBS claims that the non-existence

of direct licensing machinery in the television performance

rights field would practically bar direct dealing in several

critical aspects: ‘he producer would have difficulty in iden-

tifying the copyright owner of a song which had been sold

to another publisher; the AGAC writer-consent require-

ment would delay the licensing transaction and disrupt

production sehedules; and publishers would be unable to

69a

Appendiz B

handle requests for licenses because they have no staffs or

procedures for direct dealing in performance rights and

have not created a central facility such as the Fox Agency

to facilitate contact between producers and publishers.

These claims dissolve in view of the evidence as to the li-

censing of other rights in music.

1. Finding Copyright Proprietors

In most cases the producer of a CBS show would have

no diffieulty identifying the ‘‘outside’’ publisher of a song

for which he wants a performance license because he or

his agent already deals directly with that publisher to

obtain a synch license for the same song. As former CBS

Vice President in charge of programming, Michael Dann

noted, any program on tape or film is likely to be rerun,

and program packagers usually obtain synch rights at the

time the prugram is produced. Wright, who is on the

staff of ‘‘The Carol Burnett Show,”’ testified that problems

in clearing synch rights are ‘‘rare.’’ Edward Vincent, a

former staff member of ‘‘The Jim Nabors Variety Hour,”’

testified that the Bernard Brody Agency would have no

difficulty in giving him the name and address of any copy-

right owner.

Even if lines of communication to obtain synch rights

were not already established, there are several other ways

in which a producer could identify the publisher of music

he plans to use. Emil Poklitar, who works in CBS’ music

clearance department stated that CBS maintains a file con-

taining the relevant information on over 100,000 composi-

tions. Indeed, as Wright testified, publishers regularly

70a

Appendiz B

barrage television producers with catalogs and brochures

to promote the use of their music. Where they have not

done so, there appears to be no reason why CBS could not

simply request the catalogs of the major publishers. Final-

ly, it should be stressed that in the vast majority of cases,

the copyright owner listed on the sheet music or phono-

graph record is still the owner of the composition in ques-

tion.

2. The AGAC Writer-Consent Requirement

Nor has CBS proven that the writer consent require-

ment in the AGAC form contract would cause significant

delay in direct negotiations for performance rights. At

present, publishers are required to obtain an AGAC

writer’s consent for television synch licenses for songs

over ten years old, and movie synch licenses for vocal use

of a composition. (3M PX 31) Although Leon Brettler,

Vice President of Shapiro, Bernstein & Co., a major pub-

lisher, testified that he has occasional difficulty contacting

a writer who is on vacation or has just changed residence,

the record establishes that meeting the consent require-

ment rarely causes delay in the issuance of a license. In

addition to Brettler, several publisher witnesses were asked

if they had trouble getting in touch with their writers.

For example, Edwin H. Morris, who owns a company bear-

ing his name, testified he has had no difficulties .n doing

so. Salvatore Chiantia, of MCA Music, testified that he is

routinely able to locate his writers and obtain their con-

sent. The reason why publishers have little difficulty in

contacting a AGAC writer and obtaining his consent

Tila

Appendix B

promptly is not hard to fathom: writers are intensely

eager to have their work performed on television. Many

AGAC writers have simply given advance blanket consent

to their publishers to avoid the risk that the producer will,

because of time pressures, substitute a different song. As

Chiantia stated in a le.ter to AGAC concerning consents

for background uses (PX 84): |

**. . . if we are not able to give licenses to TV film

producers at $25. per film, or if we have to obtain

the written consent of each writer for each individual

use, we would for all practical purposes never get the

compositions from our catalogs into current TV films

other than in a few rare instances. The writers who

have given us their approval are aware of the com-

petitive situation which exists in connection with the

use of music in the filmed TV programs produced in

Hollywood. It is because of that very reason that

they gave us their okay to go ahead.’’ (PX 84)

In the same vein, Louis Bernstein of Shapiro, Bernstein

& Co. wrote AGAC:

‘*. . . Please bear in mind that the authors and com-

posers who come into our offices are desperately hun-

gry for performances, which means money from

ASCAP. A good number of writers have urged us

to get them these performances and stop worrying

about the AGAC technicalities. Even so, 19 out of 20

writers would gladly give us any authorization in

writing, but since we are dealing with several thousand

writers, it becomes a difficult job to be so technical.’’

(PX 162)

There is every reason to believe that most writers would

either give their publishers blanket consent for perform-

72a

Appendiz B

ance licenses, or give it promptly on a use-by-use basis,

just as they presently do regarding synch rights. As

Chiantia testified:

“It is no different than the situation with respect

to synchronization rights. Why do you have any

greater difficulty in this matter than you have in

synchronization rights? There are certain synchro-

nization rights that you need that I have to get my

writer’s permission on and you get them. Why sud-

denly do you have such a great problem in respect of

getting performance licenses where you don’t have

that same problem in getting synchronization li-

censes.’’ (Tr. 2970)

3. The Need For Centralized ‘‘ Machinery”’

Although CBS has failed to prove that producers seek-

ing performance licenses could not identify copyright

owners, or that the writer consent requirement would sig-

nificantly delay direct licensing of performance rights, we

agree that direct licensing on any major scale would re-

quire some central clearing machinery through which trans-

actions could be brokered. Without such machinery, direct

licensing might be mechanically feasible, but would be a

bulky and inefficient system: for a program producer (or

an agent such as the Brody Agency) to contact each of the

publishers whose compositions interest him, for every pro-

gram, would of course be distinetly time-consuming and

expensive.

In the past, the Fox Agency has responded to pub-

lishers’ needs for central ‘‘direct-licensing’’ machinery for

new kinds of music rights by expanding its long roster

of services. Defendants argue, accordingly, that music

73a

Appendiaz B

publishers would turn over the job of clearing television

performance rights licensing to Fox as well. CBS replies

that defendants oversimplify the problem of creating ma-

chinery because there can be no assurance that the Fox

Agency will agree to take on the job of brokering per-

formance rights. Of course, it is possible that Fox would

refuse the opportunity to expand its business. But the

lack of hard evidence on the point is chargeable to CBS,

not defendants. Never having explored the feasibility of

direct licensing, CBS has not given Fox any occasion to

consider the possibility of brokering such licenses. In any

event, there is no substantial basis for concludinghat the

Fox Agency would not expand its services to include tele-

vision performance rights, just as it has expanded in the

past to meet the need of publishers for a central agency

for movie performance rights and television ‘‘synch’’

rights. However, even if Fox were unwilling to take on

the job of brokering performance rights, the creation of a

new agency modeled along the same lines need not be the

imposing project CBS makes it out to be. Albert Berman,

Fox’s Managing Director, testified as follows:

‘“‘Q Mr. Berman, you were asked by Mr. Hruska

on direct something about suppose publishers ask you

to take over licensing of public performances on net-

work television. Do you remember that question?

A Yes.

Q And as I understood it, you said that vou wanted

to make a study before giving a detailed answer.

A Yes.

Q Let me ask this, sir: Would the task be sig-

nificantly different from the task you now have when

licensing TV syne [sic] rights?

74a

Appendiz B

A Only in numbers. It is certainly much more

formidable merely because the uses would be so much

greater. But the job could be done, I assume, with

enough people and enought [sic] physical equipment.’’

(Tr. 973-74)

Berman did not testify, and CBS did not offer proof, as

to how many people and how much physical equipment

would be required. According to CBS’ projections, which

we adopt arguendo, the number of direct licensing trans-

actions required each year from outside publishers would

range from approximately four thousand to eight thousand.

(The low figure is projected from a period in 1971 when

CBS had three night-time musical variety series; the high

figure is based on a period in 1970 when it had seven such

programs. CBS does not make a projection for the season

which began in the Fall of 1974, during which it offered

only one variety serial, ‘‘The Carol Burnett Show.’’) The

question is whether CBS’ projection of some 4,000 to 8,000

transactions would entail a large number of complex tasks

requiring a massive staff, or a simple task repeated four

thousand times by a relatively modest one. CBS’ post-

trial submissions strain to give the impression that each

time a producer wished to use a certain type of composition,

Fox or its newly created equivalent in the performance

rights field would have to contact several different pub-

lishers, who in turn would have to check whether the AGAC

writers (if any) whose music is involved would give their

consent to the grant of a license, and then begin active

price negotiations for the song or songs in question. (CBS

Post-Trial Brief at 37-44, Reply Brief at 39-40).

75a

Appendix B

It is unrealistic to assume that such cumbersome pro-

cedures would be involved in a direct licensing world; in-

deed CBS’ own papers offer the key to streamlining the

job. As noted early in this opinion, CBS seeks as one form

of relief in this suit the establishment, under court super-

vision, of what it calls a ‘‘per-use’’ system. Under the

per-use system, as outlined by CBS,” musical compositions

would continue to be licensed through ANCAP and BMI,

but instead of taking a blanket license, CBS would license

individual compositions, for which it would pay a specified

fee for each use of music from the per-use ‘‘reservoir.”’

The fee for each license would be fixed in a schedule re-

flecting the nature of the use (e. g., theme, feature or back-

ground) and other appropriate factors, such as duration

of use. CBS suggests that one convenient way to set a

fee schedule is to adopt the present formula by which

ASCAP and BMI give royalty ‘‘credits’’ to their members

and affiliates. (CBS Post-Trial Reply Brief at 71) The

question which naturally arises, and CBS does not answer,

is why publishers would not readily adopt the same con-

cept of a fee schedule’ under a direct licensing system,

12. The outline of CBS’ “per-use” proposal are [sic] set forth at

note 7, supra.

13. Instead of addressing itself to the feasibility of a fee schedule

in a direct licensing world, CBS postulates that a central licensing

agency for performance rights would require a “massive” staft because

the negotiation of such rights would be more time-consuming and

complex than the “cut-and-dried” negotiations which are the rule in

the television “synch” rights field: setting a price for the former

would involve factors such as the nature and duration of the use and

the unique attributes of a particular song (e. g., ‘Happy Birthday’’).

The argument is without merit. It is true, as CBS points out, that in

most cases television “synch” rights negotiations are fairly clean cut.

(footnote continued on next page)

76a

Appendiz B

in whieh case a centralized computer would store informa-

tion as to prices as well as other necessary information

for each publisher’s catalog.

Of course, it is not for the court to propose a system

fer direct licensing. Nevertheless, on studious review of

the record, we are left with the belief that careful planning

would go far to remove any significant ‘‘mechanical’’ ob-

stacles to direct licensing for performance rights. It-is

true, as (BS points out, that new personnel would have to

be trained to handle the task. But the only evidence on

the point indicates that new central machinery could be

staffed primarily by clerical personnel, as it is at Fox.

The period required to train such personnel is presumably

measured in weeks or months, rather than years.

Such a finding is supported by CBS’ own scenario as to

how things would go in the event it prevailed in this suit:

either of its proposed forms of relief—the establishment

of its ‘‘per-use’’ system under ongoing court supervision ;

or a mandatory injunction against the issuance of blanket

licenses to any network by ASCAP and BMI—would re-

quire the development of ‘‘machinery’’ at least as exten-

sive and very much of the same pattern as that involved in

However, synch rights and performance rights for movies are nego-

tiated in a single package; and accordingly the nature of the movie

rights transaction provides a more relevant basis for determining

CBS’ argument that performance rights negotiations would be a

complicated matter. As described by Marion Mingle, who handles

movie rights at the Fox Agency, the increased complexity of the

performance nights transaction amounts to asking the producer about

the nature of the intended use and passing on the information to the

publisher. (Tr. 870-71, 876-77) Mingle testified that she can gen-

erally supply quotations to producers within two days and, as noted

earlier, she and a single assistant handle all of the several hundred

movie rights licenses Fox issues each year.

77a

Appendiaz B

a direct licensing system under the consent decrees. For

example, if CBS won an injunction against the issuance of

blanket licenses, it would of course be faced with the very

same mechanical ‘‘barriers’’ to direct dealing of which

it now complains so strenuously. Nevertheless, Donald

Sipes, CBS’ Vice President in charge of business affairs

and planning for the network, freely conjectured that in

such an event the lack of ‘‘machinery’’ would pose no

problem because ABC-TV and NBC-TV would be ‘‘in the

same boat’’:

‘*A Under that assumption, all three networks are

in the same boat. In other words, neither one of the

three—that’s bad English—but none of them have a

competitive advantage, you see, over the others.

Q Assuming that, then what?

A Assuming that with a lot of struggle and some

chaos up front, I think again that the machinery neces-

sary to broker deals between the sellers and the buyers

in this situation will spring up to fill that gap. There

is a need, there is money to be made, and people will

spring into that breach to fill that need and make it

happen. And deals, direct deals will be made for

musical compositions between buyers and sellers.

Now, I do believe, of course, that it will take some

time for that machinery to develop up front, but of

course all three networks in that situation would have

that same problem.

Q Suppose, Mr. Sipes, the injunctive order, in

other words the order prohibiting ASCAP and BMI

from licensing television networks, the effective date

of that order was deferred for a period of, let’s say,

a year. Would that remove the struggle you men-

tioned earlier in your answer? Would that solve that

problem, in your mind?

78a

Appendix B

A I think that during that time the machinery

would develop, yes, sir.’’ (Tr. 79-80)

As we view the matter, CBE is not entitled to relief in

this suit simply for the purpose of insulating it from the

risk of competitive disadvantage vis-a-vis other networks

if it makes the business decision to experiment with a new

method of music licensing. If CBS’ Vice President in

charge of the very subject at hand concedes that within

one year suitable machinery would ‘‘spring up,’’ no reason

appears on this record why it could not in any event plan

to change over to direct licensing, effective one year hence,

without a court order to spur the effort.

CBS’ sole response is that copyright proprietors would

not of their own accord leave the safe haven of ASCAP

and BMI and expend their resources to set up the ma-

chinery for direct dealing because they are afraid to en-

gage in price competition for their works; and that only

a court order could provide the ‘‘signal’’ that they must

do so. The argument is unpersuasive. Assuming that

CBS producers—a conclusion we reach in the next section

—they would logically create an efficient mechanism to fa-

cilitate it (as they have in the case of other music rights),

if only to hold down their own costs. In any event, the

cost of creating new machinery would be passed on to

music users, just as it is at present through ASCAP, BMI

and the Fox Agency.

In sum, as stated earlier, CBS might well have ‘‘machin-

ery’’ problems if it cancelled its blanket license ‘‘tomor-

row.’’ But this is not proof that defendants have created

79a

Appendix B

**barriers’’ to direct licensing in order to compel CBS to

take a blanket license; it is just as consistent with the fact,

which the evidence establishes, that no one, including CBS,

imagined that the blanket license would lose its charms

until shortly before this suit. Because CBS does not claim

that it would commence direct licensing tomorrow (although

its counsel often questioned witnesses on the assumption

that it would), the relevant question is whether the relative-

ly modest machinery required could be developed during a

reasonable planning period. The evidence establishes

beyond doubt that it could.

IX.

Would Copyright Owners Attempt

to Thwart Direct Licensing?

A. The Nature of CBS’ Proof

In the absence of proof that direct licensing is unfeasible

because of mechanical obstacles CBS’ case rests primarily

on its claim that copyright proprietors would refuse to deal

directly if CBS asked, or at least make it such an arduous

and expensive proposition that CBS would be forced to

resume the blanket arrangement. (CBS Post-Trial Reply

Brief at 29) Indeed, in a substantial sense, the ‘‘disinclina-

tion issue,’’ as it has come to be called in the course of the

lawsuit, is the major factual issue in the case. As CBS’

post-trial papers recognize, even questions such as mechan-

ical feasibility hinge almost exclusively on the willingness

or unwillingness of the defendants to smooth CBS’ course

or obstruct it, as the case may be. (See, e. g., CBS Proposed

Findings at 45-47)

80a

Appendiz B

Such a claim is difficult to prove even in the best of cases,

and the present suit is no exception. CBS’ Vice President

Donald Sipes testified that CBS has never sought a direct

license. The three CBS witnesses who predicted that writ-

ers and publishers would refuse to deal with producers were

Sipes, and producers Robert Wright and Edward Vincent.

Their testimony on the point was unimpressive, particular-

ly inasmuch as none of them had ever spoken to a publisher

or a writer in relation to performance rights licensing.

Vincent’s direct testimony is representative:

‘‘Q Let’s go back to the delays you said you antic-

ipated getting a secretary on the telephone, et cetera.

Don’t you think that copyright proprietors are going

to see to it that all those delays are removed in this

world in which the CBS Television Network has can-

celled its ASCAP-BMI licenses?

A No, I don’t believe that because I am assuming

on the basis of this particular lawsuit, that ASCAP

and BMI like things the way they are.

If you are asking me to assume that they are going

to have a parade for me if I tell them in front I am

going to run an end run around their entire organiza-

tion and attempt to deal direct and circumvent the

ASCAP and BMI—

The Court: I don’t think that is the question

Mr. Hruska asked you. I think he asked you whether

you wouldn’t expect the copyright owners to make

quick arrangements to deal with you if CBS didn’t

have a—

A No, sir, I don’t, and that’s the reason I don’t.

I don’t believe that they would want to see that par-

ticular system succeed.

8la

Appendix B

The Court: Do you have any basis for saying

that? ;

The Witness: Well, as I began to state before,

your Honor, there is a system under which they are

operating now, which I assume for them is a very

good system and that they like—’’ (Tr. 636-37)

‘‘The Witness: Your Honor, it is my opinion

that we are talking about members of a group, of a

group that has banded together for a very specific

reason, and they have sought the shelier of this

group for good and reasonable reasons, again, I as-

sume.

You are also asking me if I think that I am going

to expect them to want to deal with me?

The Court: Yes, I am.

The Witness: To come toward me and say, ‘Yes,

let’s make a deal,’ after I have circumvented their

group.

No, your Honor, I don’t believe that prudent

business sense dictates that I should believe that.

The Court: I mean that’s just on your general

experience, you are saying that?

The Witness: Yes, sir.’’ (Tr. 639-40)

Despite the testimony of Sipes, Wright and Vincent that

many if not most ASCAP members and BMI affiliates

would be ‘‘disinclined’’ to deal directly with producers for

performance rights, none of them could give the name of

even one actual publisher or writer whom they thought

would fall into that category. Sipes has never spoken to a

with ‘‘The Carol Burnett Show,’’ was ‘‘confident’’ that

ASCAP members would be reluctant to deal with him, but

82a

Appendix B

was certain that Joe Hamilton, who wrote the theme music

for the show would be inclined to deal (Tr. 489). Edward

Vincent, of the Jim Nabors show, stated that the two writ-

ers with whom he had actually worked would deal with him

(Tr. 726). CBS’ economist Franklin Fisher, also expressed

the view that ASCAP members would be reluctant to deal

but, like Sipes, he has never spoken to a writer or publisher

(Tr. 4853).

In the absence of evidence that any ASCAP member or

BMI affiliate has ever refused or even threatened to refuse

to grant CBS direct performance rights for any composi-

tion, CBS offered evidence as to (1) the strong economic

incentives which would deter copyright proprietors from

direct dealing (2) the experience of the Minnesota Mining

and Manufacturing Company (the ‘‘3M’’ incident) in direct

licensing its music needs for a background music tape and

tape-player which it marketed in the mid-1960’s and (3) the

ease with which defendants could thwart a direct licensing

attempt by CBS, by exacting premiums for the licensing of

music already taped or filmed, (music ‘‘in the ean’’) which

has until now been covered by a blanket license.

B. The Alleged Incentives to Refuse to Deal

CBS’ Post-Trial papers postulate the fact, which we

adopt arguendo, that participants in the market for per-

formance rights are rational businessmen motivated by the

wish to maximize profits. It excuses its failure to pursue

alternatives to the blanket license by arguing that ‘‘no

reasonably prudent manager of a television network’’

would subject his company to the risks involved. (CBS

83a

Appendix B

Proposed Findings at 33, 36) By a similar line of reason-

ing CBS contends that no prudent copyright proprietor

would voluntarily relinquish the bargaining leverage and

shield against price competition which ASCAP and BMI

provide. According to CBS’ theory of the case, these es-

sentially hypothetical facts establish both the restraint

(i. e., the unavailability of the direct licensing alternative)

and the threat of loss (i. e., the economic risk involved in the

attempt). We are skeptical of the validity of this general

approach, for the issue is not what CBS or copyright pro-

prietors perceive their respective risks to be, but whether

CBS has established that its fear that copyright proprietors

would in fact attempt to thwart a direct licensing attempt is

justified. With that caveat, we turn to the relevant evi-

dence.

It is true, as CBS relentlessly emphasizes, that most of

the writer and publisher witnesses who testified, by depo-

sition or at trial, expressed a strong preference for the

blanket licensing system. The preference is no surprise in

view of the fact that the blanket license is the only way in

which performance rights have been marketed to television

networks for nearly thirty years. Moreover, the writer-

publisher testimony establishes that, from their standpoint,

the system is trouble-free and self-executing and the finan-

cial rewards are satisfactory. None of them expressed

the wish to exchange their present, relatively uncompli-

cated way of doing business for what they viewed as a

new mode involving unfamiliar procedures and _ possible

financial uncertainty.

CBS stresses selected portions of the deposition testi-

mony of several publisher witnesses who expressed them-

Sta

Appendia B

selves vigorously when asked to comment on such ques-

tions as the possible prohibition of the blanket licensing

system. Several common themes pervade the portions of

their testimony which CBS stresses: the recognition that

there is a large number of publishers and writers who

would be competing for exposure on the CBS network; that

many of them might face financial difficulties as a result

of possible intense competition in a very limited market;

and the strong preference for licensing through ASCAP

and BMI, which have a measure of bargaining clout in

dealing with CBS, the world’s largest ‘‘consumer’’ of

music.

We may agree that the cited testimony proves that

writers and publishers prefer the present system and are

apprehensive of dealing directly with CBS. However, this

by no means proves the obverse: that copyright owners

would refuse to deal with CBS if it discontinued its blanket

license and insisted upon dealing on a direct licensing basis.

Indeed, the snippets of testimony on which CBS relies are

replete with the Darwinian imagery of cutthroat competi-

tion among hungry publishers and writers seeking network

exposure. The colorful deposition testimony of Leon Bret-

tler, an officer of Shapiro, Bernstein, Inc., is an example:

‘*Q Do you think that there would be a good deal

of price cutting by publishers in the licensing of per-

formance rights to television networks?

A In this case I haven’t got the slightest hesitation

of saying not that I know, but I am virtually positive

there would be a deluge of price cutting bordering

on the cutthroat nature that would lead to mutual

self-annihilation.

_ >. >

85a

Appendix B

‘*I mean among us competitors who would be so

desperate and jockeying for position, none of us hav-

ing any strength, dealing with one huge user or an

industry that is a huge user, consisting of three main

entities and we only have those three doors open to

us and all 4000 of us converging through that door,

I think there would be tremendous amounts of con-

cessions and price cutting and deals.’’ (Dep. 295-98)

. @ oe

‘“‘T think that it would have substantial impact

across the board, even to the big companies . . . the

largest music publisher is still David compared to

the Goliath of the television industry. The so-called

top ten are still Davids compared to Goliath and the

only time that I have ever heard of David whipping

Goliath was in the Bible. Usually Goliath swamps

David.’’ (Dep. 302-03)

We do not view this testimony as aiding CBS’ case. It

tends rather to establish that copyright owners would line

up at CBS’ door if direct dealing were the only avenue

to fame and fortune.

More significant, however, is the fact that, when read

in their entirety, the depositions take on an entirely differ-

ent hue. For example, Brettler testified that ‘‘there is no

question of the fact that we would negotiate something’

if a producer requested performance rights (Dep. 184-85),

and that ‘‘hordes’’ of other publishers would do the same.

(Dep. 304-05) Edwin H. Morris, who operates another

publishing company, expressed anxiety similar to Bret-

tler’s. However, far from stating that he would not deal

with CBS, he testified :

86a

Appendia B

**Q Let us assume that telephone does ring, that

you are approached by producers and/or network

people who are interested in obtaining direct licenses

to the compositions or various of the compositions in

the Morris catalog. Do you talk to these people?

A Yes.

Q Do you invite them to come into your office?

A I will even go to theirs.’’ (Dep. 211-12)

The conclusion that CBS has failed to prove that the

‘*disinclination’’ of writers and publishers to leave the

blanket system would ripen into a refusal to deal directly

is fortified by the trial testimony. Although most of the

writers and publishers who testified expressed concern

similar to those of CBS’ deposition witnesses,"* all but

one of them testified that he or his company would nego-

tiate directly with CBS for performance rights, and most

of them believed that their attitudes were representative

of others in their position. For example, Arnold Broido,

President of the Theodore Presser Company, testified :

=> >

‘‘Let us suppose there came a time when CBS

no longer held licenses from ASCAP and BMI and

came to you to negotiate or seeking to negotiate direct

licenses with you for public performance of composi-

tions in your repertory.

What would be your reaction?

A We would deal with them, of course.

Q Would you tell us why?

A Well, there is really very little else that we

could do. We would have no choice in the matter.

14. We note in passing that only one of the four deponents on

whose testimony CBS relies in support of the “disinclination” issue

was called by CBS«to testify at trial.

87a

Appendiz B

We would regret it because, obviously, it would be an

inconvenience to us arid we would regret the oreaking

of the relationship but we would deal with them.’’

(Tr. 3492-93).

Broido also stated that:

**the publishers would by and large talk with CBS or

anyone else who came to them.’’ (Tr. 3498)

Salvatore Chiantia, President of the Music Division of

MCA, Inc., testified:

‘*My primary responsibility is to get my music

played. To get it exposed. And if I have to go to

CBS in a direct licensing scheme, 1 am going to go.

I am not going to sit back and say, I hope you fail.

I want you to use my music and I am going to try to

to make it work.”’ (Tr. 2957)

‘*There are only three games in town. I have to

play one of three games. If we are talking about tele-

vision, there are only three games in town. If I am

effectively cut out from one, I only have two more

to play with.’’ (Tr. 2947)

The response of the composers who testified was simi-

lar to that of the publisher witnesses. For example, the

dean of American composers, Aaron Copland, expressed

reluctance to change the blanket arrangement, but testified

that he would engage in direct dealing if necessary:

**Q Now, it has been suggested in this lawsuit that

in the event that the Columbia Broadcasting System

Television Network for some reason or another no

longer held a license from ASCAP and BML it might

come to you, as an individual copyright proprietor,

as an individual composer, and seek a license from you

88a

Appendiz B

for the right to perform your copyrighted work or

works.

I would like to ask you, sir, whether if someone

from Columbia came to see you you would be inclined

or disinclined to deal with them or what would your

reaction be?

A Well, I think I would be rather regretful about

the need to individually concern myself with the li-

censing of a particular work, since the present arrange-

ment takes care of a great many of those chores, as

I would think of them, and it seems a comfortable

arrangement as it now exists, from our standpoint at

any rate.

Q If, however, the question were squarely pu‘ to

you, will you deal with CBS or will you refuse to ueal

with CBS, what would your answer be?

A Well, I think my answer would be that of most

composers. If they want to get a performance, they

will do what is necessary to get the performance and

if they have to deal with CBS, they would, I suppose,

agree to deal with them.’’ (Tr. 3485-86)

Composer John Green testified to the same effect:

‘*Q Mr. Green, suppose the following hypothesis.

That CBS canceled its ASCAP blanket license and

NBC and ABC continued to hold blanket licenses from

ASCAP and suppose that either CBS or a producer

of a CBS film series show came to you and sought to

engage you to write the background and theme music

for the show.

Would you be inclined or disinclined to negotiate

with him for the writing of that music?

A I would be inclined to negotiate with him.

Q Do you have an opinion as to whether other

background writers and composers would be inclined

89a

Appendia B

or disinclined to negotiate with CBS or its producers

in that situation?

e eo eo

Q Do you have an opinion?

A I know how I would like to answer that question.

I don’t have an opinion but I would be surprised if

they didn’t feel exactly as I do.

Q Mr. Green, can you tell us why you would be in-

clined to negotiate with CBS or the producer of the

CBS show in that situation?

A For the following reasons. I like to think that

part of my motivation is aesthetic and artistic, but I

am also a fellow who earns his living by the making of

music in various forms. I am also an artist who derives

only secondary pleasure from thinking how great my

music is when I hear it in my head.

I like to hear it performed and I like to get paid for

hearing it performed and you referred to [CBS]—

would I be inclined to negotiate with [CBS] for the

performance? Well, they are one of the principal

outlets in the world for the performance of music and

I want my music to be performed, I want the public to

hear it, I want to get paid for it and I would be totally

inclined to negotiate with anybody who would like to

use it.

Q Mr. Green, you have also told us that in addi-

tion to your work as a background composer you have

written songs in your music career.

Suppose in that situation we posited just a moment

ago, CBS canceling its ASCAP license, suppose one of

your publishers called you up and told you that the

producer of a CBS variety show is interested in using

one of your compositions, one of your songs, on a show,

and he asked you for your opinion or view, would you

90a

Appendix B

be inclined to recommend that he license or negotiate

with CBS or the producer or would you recommend

that he not negotiate with CBS or its producer?

A I would recommend that he negotiate.

Q And why?

A Because I would want my song to be exposed

and I would also want to derive the revenue that would

come from such a source as [CBS] for that exposure.’’

(Tr. 3457-60)

Perhaps it’ not surprising that Walter Dean, who was

called by CBS, was the only witness to testify that the pub-

lishers for whom he worked would probably refuse to grant

licenses to CBS. The publishers are April and Blackwood,

companies which CBS owns, and whose catalogs consist

mostly of copyrights owned by CBS as well.

Although the testimony of the writer and publisher

witnesses persuasively suggested that they would deal di-

rectly with CBS, at least ex necessitate, our conclusion that

CBS has not proven that they would

This text is long and has been trimmed here. Open the source document for the complete record.

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