Appendix — Columbia Broadcasting System, Inc. v. American Society of Composers, Authors, & Publishers

Supreme Court brief1980

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Supreme Court, US.

80-323 FILED

AUG2 9 1980

MICHAEL RODAK, JR., OLE

No.

IN THE

Supreme Court of the United States

October Term, 1980

COLUMBIA BROADCASTING SYSTEM, INC.,

Petitioner,

—against —

AMERICAN SOCIETY OF COMPOSERS, AUTHORS

AND PUBLISHERS, et al.,

Respondents.

APPENDIX TO PETITION

FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

ALAN J. HRUSKA

One Chase Manhattan Plaza

New York, N. Y. 10005

(212) 422-3000

Attorney for Petitioner

Of Counsel:

DAVID BOIES

LOUIS M. SOLOMON

CRAVATH, SWAINE & MOORE

One Chase Manhattan Plaza

New York, N. Y. 10005

August 29, 1980

TABLE OF CONTENTS

Opinion of the Court of Appeals Sought To Be

Reviewed, 620 F.2d 930 (2d Cir. 1980)

Opinion of the Court of Appeals Denying Defen-

dants’ Motions For Summary Affirmance, 607

F.2d 5438 (2d Cir. 1979)

Opinion of the Supreme Court, 441 U.S. 1 (1979)

[Initial Opinion of the Court of Appeals, 562 F.2d

130 (2d Cir. 1977)

Opinion of the District Court, 400 F.

(S.D.N.Y. 1975)

Judgment of the Court of Appeals Sought To Be

Reviewed

Supp. 737

Orders of the Court of Appeals Denying CBS’s

Petition for Rehearing and Suggestion for

Rehearing En Bane

3rief of the United States Submitted (on Remand)

to the Court of Appeals

grief of the United States Submitted to the Second

Circuit Court of Appeals in United States »

ASCAP (Application Of National Broadcasting

Company), Docket No. 71-1487

Page

A-]

APPENDIX A

OPINION OF THE

COURT OF APPEALS

SOUGHT TO BE REVIEWED

REPORTED AT 620 F.2d 930 (2d Cir. 1980)

APPENDIX A

UNITED STATES COURT OF APPEALS

FoR THE SECOND CIRCUIT

COLUMBIA BROADCASTING SYSTEM, INC.,

Plaintiff - Appellant,

—against—

AMERICAN SOCIETY OF COMPOSERS,

AUTHORS AND PUBLISHERS, et al.,

Defendanis- Appellees.

No. 120, Docket 75-7600

Argued Nov. 20, 1979

Decided April 3, 1980

Alan J. Hruska, New York City (Roger H. Cummings,

John N. Mayberry, Cravath, Swaine & Moore, and John D

Appel, Deputy Gen. Counsel, CBS Ine., New York City, on

the brief), for plaintiff-appellant.

Jay H. Topkis, New York City (Bernard Korman,

Herman Finkelstein, Allan Blumstein, Max Gitter, Rich-

ard Reimer, Fred Heather, Andrew Peck and Paul, Weiss,

Rifkind, Wharton & Garrison, New York City, on the

brief), for defendant-appellee ASCAP.

Robert J. Sisk, New York City (George A. Davidson,

Norman C. Kleinberg, Conley E. Brian, Jr., Michael E

Salzman, and Hughes, Hubbard & Reed, New York City,

on the brief), for defendant-appellee BMI, Ine.

David R. Hyde, New York City (Cahill, Gordon &

Reindel, New York City, on the brief), for NBC, Inc. as

amicus curiae.

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Ira M. Millstein,. New York City (Weil, Gotshal &

Manges, New York City, on the brief), for All Industry

Television Station Music License Committee as amicus

curiae.

Robert H. Bork. New Haven, Conn., for Aaron Cop-

land, et al., as amici curiae.

Robert M. Lichtman, Washington, D.C. (Philip El-

man, Jerry D. Anker, and Wald, Harkrader & Ross,

Washington, D.C., Denis Defreitas, Legal Advisor, The

Performing Right Society, Ltd., London, England, and

Jean-Loup Tournier, Directeur Gen., Societe Des Auteurs,

Compositeurs et Editeurs de Musique, Paris, France, on

the brief). for The Performing Right Society, Ltd. and

Societe des Auteurs, Compositeurs et Editeurs de Musique

as amici curiae.

Barry Grossman, Washington, D.C. (John H.

Shenefield, Asst. Atty. Gen., John J. Powers, III, Andrea

Limmer, Washington, D.C., on the brief), for The United

States as amicus curiae.

Hawkins. Delafield & Wood, New York City (Philip R.

Forlenza and Rafael Pastor, New York City), submitted a

brief for ABC, Inc., as amicus curiae.

Before LUMBARD. MOORE AND NEWMAN, Circuit

Judges:

NEWMAN, Circuit Judge:

This is the fourth round of litigation in a lawsuit

brought by Columbia Broadcasting System, Inc. (CBS)

against the American Society of Composers, Authors and

Publishers (ASCAP), Broadcast Music, Inc. (BMI), and

their members and affiliates. The lawsuit seeks injunctive

relief to prevent ASCAP and BMI from using a blanket

license to convey to television networks non-dramatic

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performing rights, that is, the right to “perform” copy-

righted music by transmitting it to the networks’ tele-

vision audiences. The blanket license permits the licensee

to use any music in the repertory of the licensor, as often

as desired, for a one-time license fee. The license lasts for

a stated term, usually but not necessarily one year. Pay-

ment is set at either a flat sum or a percentage of the

network’s revenue. Alternatively to barring use of the

blanket license, the CBS suit seeks modification to require

that ASCAP and BMI charge predetermined amounts for

each time copyrighted music is used on the air. The

blanket license in its present form is alleged to be an

agreement unreasonably restraining trade in violation of

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

The lawsuit was filed in 1969. Round one was an

eight-week bench trial in 1973 in the District Court for

the Southern District of New York (Morris Lasker,

Judge). In a comprehensive opinion, replete with detailed

findings, Judge Lasker found that CBS had failed to prove

its allegations and ordered the complaint dismissed.’ Co-

lumbia Broadcasting System, Inc. v. American Society of

Composers, 400 F.Supp. 737 (S.D.N.Y. 1975). Round two

was the prior appeal to this Court. In an opinion by Judge

Gurfein, the Court ruled that the blanket license was an

illegal price-fixing device, a per se violation of §1. The

matter was remanded to the District Court for formula-

tion of an appropriate remedy. Columbia Broadcasting

System, Inc. v. American Society of Composers, Authors and

That dismissal left pending a severed counterclaim of the defend-

ants, alleging antitrust violations on the part of CBS. The dismissal of

the complaint, disposing of less than all the claims, would ordinarily not

result in an appealable final judgment in the absence of a certification

pursuant to Fed.R.Civ.P. 54(b); however, the dismissal is appealable

under 28 U.S.C. § 1292(a)(1) because it is an order denying an

injunction.

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Publishers, 562 F.2d 130 (2d Cir. 1977). Judge Moore

disagreed with the conclusion that the blanket license was

price-fixing, but concurred in the decision to remand so

that a “practical method” of “per use licensing”’ might be

developed. Jd. at 141. Round three occurred when the

Supreme Court reviewed the decision of this Court. Writ-

ing for an eight-member majority, Justice White con-

cluded that the blanket license was not a per se violation of

$1 and remanded the case to this Court for further

proceedings, including an assessment of the blanket li-

cense under the rule of reason. Broadcast Music, Inc. v.

Columbia Broadcasting System, Inc., 441 U.S. 1, 99 S.Ct.

1551, 60 L.Ed.2d 1 (1979). Justice Stevens dissented,

agreeing with the majority that the blanket license was

not a per se violation of § 1 but concluding that the record

and certain of Judge Lasker’s findings established a § 1

violation under the rule of reason. Jd. at 25, 99 8.Ct. at

1565.

The matter is now before a panel of this Court that

includes only Judge Moore from the prior panel.’ Addi-

tional briefs have been submitted in response to the

Court’s framing of specific issues, 607 F.2d 543, and

extensive oral argument was heard.’ We now affirm the

decision of the District Court.

Facts

The three prior opinions, especially Judge Lasker's,

have so fully set forth the facts that only the bare

essentials need be again recounted. ASCAP has a

‘ Judge Lumbard was assigned to the panel after the death of

Judge Anderson; Judge Newman was assigned to the panel after the

death of Judge Gurfein.

‘The oral argument was held before Judge Newman was assigned

to the panel, but he has had the benefit of a complete 234-page

transcript of that argument.

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membership of approximately 6,000 music publishing com-

panies and 16,000 composers. BMI, a non-profit corpo-

ration, is affiliated with approximately 6,000 music

publishing companies and 20,000 composers. Composers of

virtually all music copyrighted in the United States have

granted to either ASCAP or BMI the non-exclusive right

to license users to perform their compositions. The reper-

tory of ASCAP has more than three million compositions,

and the repertory of BMI has more than one million

compositions. CBS and the other two major television

networks, NBC and ABC, have held blanket licenses from

both ASCAP and BMI for many years. CBS first obtained

its blanket license from ASCAP in 1946. At that time

ASCAP held exclusive rights to the music of its members,

and the blanket license it offered to broadcasters was the

only device whereby they could obtain performing rights

to copyrighted music.

As a matter of legal entitlement, licensing arrange-

ments were significantly changed in 1950 when a consent

decree, first entered in 1941 to settle Government litiga-

tion against ASCAP,' was reopened and substantially

modified.” The amended consent decree permits ASCAP

to obtain only non-exclusive rights from its member-

composers and enjoins ASCAP from limiting, restricting,

or interfering with the right of any member to issue

directly to any user a non-exclusive license for performing

rights. The composers thus retain the legal right to bypass

ASCAP and license performing rights directly to CBS.

The amended decree also requires ASCAP to offer to any

broadcaster either the blanket license, or, as an alterna-

‘United States v. ASCAP, 1940-1943 Trade Cas.956,104 (S.D.N-Y.

1941).

' United States v. ASCAP, 1950-1951 Trade Cas. 962,595 (S.D.N.Y.

1950).

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tive, a per program license. Both types of licenses permit

the user to perform any music in the ASCAP repertory;

for the per program license the user pays only with

respect to programs on which copyrighted music is per-

formed, whereas, with the blanket license, the user pays a

one-time fee for the duration of the license. The decree

also provides that in the event of disputes concerning the

amount of license fees, the District Court for the Southern

District of New York is authorized to determine a reason-

able fee.

Similar, though not identical provisions govern the

licensing of performing rights by BMI. For purposes of

this litigation, the significant fact, stipulated to by the

parties, is that CBS could obtain non-exclusive licenses for

performing rights directly from copyright owners affil-

iated with BMI with the same ease or difficultly as it could

obtain such rights from copyright owners who are mem-

bers of ASCAP.

As a matter of factual occurrence, CBS has never

made any attempt to obtain performing rights directly

from a copyright owner.

Beyond these facts concerning licensing arrange-

ments and opportunities, some understanding is required

of the facts concerning CBS’s use of music. Two types of

classification are involved: one concerns the function of

the music, and the second concerns the circumstances

under which the selection of music is made. CBS, like all

broadcasters, uses music as theme, background, or feature.

Theme music is played at the start or conclusion of a

program and serves to enhance the identification of the

program. Background music accompanies some of the

action on the screen. Feature music is a principal focus of

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audience attention, such as a popular song sung on a

variety show.

Music on network television is selected in one of three

ways. Most of it, as much as 90%, is selected by production

companies, or “packagers,” which produce television pro-

grams and sell them to the networks. The music on these

programs is almost always theme and background music,

much of it composed specially for the production company.

Typically the company employs a composer to write theme

and background music, acquires the copyright from him,

and assigns it to its own music publishing subsidiary.

Such music is called “inside” music. In some instances the

packager decides to use music that has already been

composed, so-called “outside” music. In these instances

the packager must acquire from the copyright owner the

right to record the music on the soundtrack of the pro-

gram’s film or tape. This right is known as a “synch”

right, the music often being carefully fitted to synchronize

with the action on the screen. Acquisition of the synch

right, however, does not carry with it the separate right to

perform the music on the air. That performing right

could be acquired by the packager when he acquires the

synch right, and reassigned to the network; however, the

industry practice has been that the network automatically

acquires the performing right for all music used on pack-

aged programs under the network’s blanket license for

the performing rights to all ASCAP music, and the

packager therefore has no need to acquire a performing

right for reassignment to the network.

A small portion of network music is selected by the

network itself, in those few instances when the network is

producing its own programs. A still smaller portion is

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selected by the person or group performing the music, in

those very few instances where music is spontaneously

used. Examples are a football half-time show or a late

night talk show on which a guest sings an unscheduled

song.

Discussion

Our starting point for determining whether the blan-

ket license violates § 1 is the decision of the Supreme Court

remanding the case to us. That decision obliges us to make

“an assessment under the rule of reason of the blanket

license as employed in the television industry.” 441 U.S. at

24-25, 99 S.Ct. at 1565. Since the parties are agreed that

the relevant market is the licensing of performing rights

to the television networks, we assume our consideration

should be similarly confined to the blanket license as

employed by the television networks.’ A rule of reason

analysis requires a determination of whether an agree-

ment is on balance an unreasonable restraint of trade,

that is, whether its anti-competitive effects outweigh its

pro-competitive effects. National Society of Professional

Engineers v. United States, 485 U.S. 679, 98 S.Ct. 1355, 55

L.Ed.2d 637 (1978); Continental T.V., Inc. v. GTE Sylvania,

Inc., 483 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977);

Chicago Board of Trade v. United States, 246 U.S. 231, 38

S.Ct. 242, 62 L.Ed. 683 (1918). In this case, however, we

are met with the threshold contention of the defendants

that the balancing of pro- and anti-competitive effects

need not be undertaken because Judge Lasker’s findings

of fact demonstrate that the blanket license has no

anticompetitive effect at all.

* The distinction may have significance, since the lawfulness of the

blanket license has also been challenged by non-network broadcasters.

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Before examining that contention, we must consider

whether it is open to us under the Supreme Court’s

remand. It is possible to read the penultimate paragraph

of Justice White’s opinion—the one directing us to make a

rule of reason assessment—as if the Supreme Court had

concluded that the blanket license is a restraint of trade

and was requesting further consideration only as to

whether its restraining effect was unreasonable, 7. e., not

outweighed by pro-competitive advantages. Our reading

of the entire opinion, however, persuades us that no such

initial conclusion was reached. In the first place, the safer

course is to »ead judicial opinions as deciding only what

they purport to decide. That may not always be only the

narrow holding, for courts, especially appellate courts,

have an entirely legitimate function of elucidating prin-

ciples of law, fairly raised by litigation, even if the

resulting pronouncements are not absolutely required for

the precise decision reached. Appellate guidance is not

valueless because it is dictum. But appellate courts,

endeavoring to rule beyond the precise holding of a case,

normally make that intention unmistakably clear. In this

instance, the Supreme Court’s opinion purports to decide

only whether the blanket license is a per se violation of § l,

that is, a practice with such a high likelihood of having

unjustifiable anti-competitive effects that it is condemned

under the antitrust laws without the need to assess its

effect in a particular case. See Northern Pacific R. Co. v.

United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545

(1958). Once the Supreme Court decided that the blanket

license is not a per se violation of § 1, we believe it made no

decision concerning the effect of the license in the net-

work television industry at issue in this case, thereby

leaving open the question of whether the license has any

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anti-competitive effect at all. Secondly, Justice White’s

opinion contains a specific observation that strongly sup-

ports our view of the decision’s reach. The opinion declares

that the majority is “uncertain whether the practice on its

face has the effect... of restraining competition among

the individual composers.” 441 U.S. at 13, 99 S.Ct. at 1559.

That observation leaves for consideration whether the

practice could have a restraining effect as applied to the

particular circumstances prevailing in the industry. To

that possibility we now turn, but in doing so, we examine

the record and Judge Lasker’s findings to see whether the

blanket license, on its face and as applied, is a restraint at

all.

There can be no dispute with the observation of

Justice Stevens, in his dissenting opinion, that “there is no

price competition between separate musical com-

positions.” 441 U.S. at 32, 99 S.Ct. at 1568-69. The blanket

license is the only device by which performing rights are

licensed to the networks, and, under a blanket license, no

selector of music to be performed on a network considers

what the price of using one song would be compared to the

price of using any other song. No price considerations

affect the choice among song's because the network holds a

blanket license to perform all songs.

The absence of price competition among songs, how-

ever, does not mean that the blanket license is a restraint

upon any potential competition. For price competition to

exist there must be at least one buyer interested in

purchasing a product from two or more sellers. In this

case, there is no evict ence that CBS has ever attempted to

purchase performing rights to any song from the copy-

right owners, either the composers or the music publishing

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companies to which they may have assigned their co-

pyrights. If the opportunity to purchase performing

rights to individual songs is fully available, then it is

customer preference for the blanket license, and not the

license itself, that causes the lack of price competition

among songs. Of course, even customer preferences can-

not save some practices from illegality under the antitrust

law. If competing sellers fix the prices of their products,

they violate § 1 no matter how much a buyer may prefer

accepting their fixed price to negotiating with each for a

lower price. But a practice that is not a per se violation,

and this blanket license has authoritatively been found

not to be such, does not restrain trade when the com-

plaining customer elects to use it in preference to realisti-

cally available marketing alternatives.

Trade is restrained, frequently in an unreasonable

manner, when rights to use individual copyrights or

patents may be obtained only by payment for a pool of

such rights, United States v. Paramount Pictures, Inc., 334

U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260 (1948) (copyrighted

motion pictures); Alden-Rochelle, Inc. v. ASCAP, 80

F.Supp. 888 (S.D.N.Y.1948) (copyrighted music): Zenith

Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89

S.Ct. 1562, 23 L.Ed.2d 129 (1969) (patents), but the

opportunity to acquire a pool of rights does not restrain.

Trade an alternative opportunity to acquire individ-

ual rights is fully available. Automatic Radio Manufac-

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

894, 94 L.Ed. 1312 (1950) (patents); Standard Oil Co. »v.

United States, 283 U.S. 163, 51 S.Ct. 429, 75 L.Ed. 999

(1931) (same).

CBS challenges this approach on the ground that some

alternatives can always be imagined that would satisfy

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the market needs of an antitrust plaintiff. As CBS argues,

the blanket license cannot possibly be saved from illegality

under § 1 simply because CBS has the alternative of hiring

composers to fill its needs for music. CBS is right. An

antitrust plaintiff is not obliged to pursue any imaginable

alternative, regardless of cost or efficiency, before it can

complain that a practice has restrained competition. But

in this case the defendants do not suggest that CBS should

do anything more extraordinary than offer to buy from

competing sellers. We agree with the defendants that if

that opportunity is fully available, and if copyrigi:i own-

ers retain unimpaired independence to set competitive

prices for individual licenses to a licensee willing to deal

with them, the blanket license is not a restraint of trade.

In fact, if there is a realistic opportunity to obtain

performance rights from individual copyright holders,

then the remedy CBS seeks in this case—modification of

the blanket license into an option to use all songs plus a

charge for each use of any one song—would be a clear

instance of unjustified price-fixing in violation of § 1. If

ASCAP were to make a per use charge for each song, it

would have to determine a price to be charged. Whether

or not that price varied for each song,’ the determination

of any price for use of a song by a membership organiza-

tion of competing songwriters would be classic price-

fixing. See 441 U.S. at 17 n. 27, 99 S.Ct. at 1561 n. 27. If

‘Not the least of the ironies of the CBS claim is that the per use

charge it finds acceptable is simply the formula now used by ASCAP to

distribute royalties among its members. That formula, based on type of

music and frequency of use, does not value any song differently than

any other. Thus, if ASCAP were to base charges to CBS on the ASCAP

royalty formula, CBS would obtain no price competition whatsoever.

Neither CBS nor the packagers would be able to shop competitively for

cheaper songs when selecting music.

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licensing directly from individual copyright owners were

not feasible, then it would be arguable that per use pricing

by ASCAP might be that rare instance when price-fixing

does not necessarily violate §1. But CBS’s proposed

remedy cannot possibly avoid the strictures of § 1 if direct

licensing is feasible. We therefore turn to an examination

of the feasibility of direct licensing.

It could be argued that the best evidence against the

feasibility of direct licensing is the fact that CBS has

brought this lawsuit at great expense to avoid taking the

blanket license. That surely suggests that the blanket

license is not something for which CBS has a preference.

But that argument ignores the principle that “the purpose

of the Sherman Act is to protect competition, not com-

petitors.”” Checker Motors Corp. v. Chrysler Corp., 283

F.Supp. 876, 885 (S.D.N.Y.1968) (Mansfield, J.), aff'd, 405

F.2d 319 (2d Cir.), cert. denied, $94 U.S. 999, 89 S.Ct. 1595,

22 L.Ed.2d 777 (1969). If the market for selling per-

forming rights to the television networks would be com-

petitive among copyright owners whenever any network

chose to deal with them, the antitrust laws are satisfied

even though one network has reasons of its own for

foregoing that competitive market in preference to the

blanket license. The defendants suggest that CBS’s pref-

erence for the blanket license derives from its unwilling-

ness to seek competitive prices from individual copyright

owners while its network competitors enjoy the advan-

tages of obtaining their performing rights under their

blanket licenses. In defendants’ view, CBS is bringing

this lawsuit, not because competition among songwriters

has been restrained, but because CBS wants protection

from the prospect of its competitors’ continuing with

blanket licenses. We need not determine whether defen-

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dants’ speculation is correct, but we agree that the issue is

whether competition among copyright owners is realisti-

cally feasible, regardless of whether CBS may have some

business reason of its own for preferring not to enter an

available competitive market.

The entire trial in the District Court concerned

primarily the issue of whether direct licensing was fea-

sible. Judge Lasker piaced the burden of proof upon CBS,

as the plaintiff, to prove that it was not, for he concluded

that there was no restraint of trade if direct licensing was

feasible. After carefully analyzing the evidence CBS

offered, Judge Lasker concluded that “CBS has failed to

prove the factual predicate of its claims—the non-

availability of alternatives to the blanket license... .” 400

F.Supp. at 780-81. That ultimate finding is abundantly

supported by subsidiary findings and by the record, which

completely refute all of CBS’s allegations of barriers to

direct licensing.

CBS maintained that the existing market structure

created by the blanket license effectively prevented it

from seeking direct licensing because any money spent to

acquire performance rights from individual copyright

owners would be wasted once CBS had already paid

ASCAP and BMI for performance rights to all music.

However, nothing prevented CBS from attempting to

obtain from the copyright owners performance rights for

some interval following expiration of the term of the

blanket license.“

CBS also contended that there existed no machinery

to handle the numerous transactions that would be re-

‘We were advised at oral argument that at the present time CBS

holds no license from ASCAP and has held none since March 1978.

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quired to obtain performance rights directly. The record

establishes that such machinery is entirely feasible; indeed

a single agency now serves as the broker for the thousands

of transactions in which copyright owners sell television

synch rights and motion picture performance rights.

Nevertheless, the claim is pressed that it would take some

amount of time and money to establish a similar mecha-

nism for the individual brokering of network television

performance rights. We note that Justice Stevens relied

on this circumstance to conclude that “real and signifi-

cant,” albeit not “insurmountable” barriers to direct li-

censing existed. 441 U.S. at 35, 99 S.Ct. at 1570. With

deference, we conclude that the evidence and Judge Las-

ker’s analysis of it demonstrate that neither the time nor

the expense of creating machinery for direct licensing

establishes a barrier of which CBS can complain. It must

be recalled that CBS has obtained its performance rights

by blanket licenses ever since the late 1940’s. Having

transacted business in that fashion for that length of

time, CBS cannot expect the antitrust laws to assure it

that a changeover to direct licensing can be accomplished

instantly or at no expense. Moreover, Judge Lasker found

that the changeover could be begun very rapidly with CBS

meeting its music needs as the machinery for direct

licensing was put into place. When Justice Stevens refers

to the machinery being created within a year, 441 U.S. at

35, 99 S.Ct. at 1570, he is citing the outer limit testified to

by a CBS witness, 400 F.Supp. at 764, whereas Judge

Lasker found that “the relatively modest machinery re-

quired could be developed during a reasonable planning

period.” /d. at 765. And when Justice Stevens refers to an

expenditure of millions of dollars by CBS, he does not

mean the cost of creating direct licensing machinery, but

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only the payment CBS will make during the final term of

its blanket license. But that is an expense for which it

bargained and for which it has received considerable

value.

Next, CBS argued that individual copyright owners

would be reluctant to deal directly with CBS in the

licensing of performance rights. At trial this was the so-

called “disinclination” issue. Wholly apart from the

record, we have some difficulty even contemplating the

feared situation of individual songwriters displaying

reluctance to arrange to have their songs performed on a

national television network, especially one owned by “the

giant of the world in the use of music rights.” /d. at 771.

3ut we need not rely on an intuitive rejection of this CBS

claim. Judge Lasker found, after hearing substantial

evidence from composers and music publishers, that if CBS

were to seek direct licensing, ‘copyright proprietors would

wait at CBS’ door.” /d. at 779.

Finally, CBS alleged a barrier to direct licensing

based upon what was called the music-in-the-can prob-

lem. CBS apprehended that, without a blanket license, it

would be subject to demands for unconscionably high fees

from the owners of copyrighted music already recorded on

the soundtracks of taped programs and feature films in

CBS's inventory. Judge Lasker properly rejected this

claim both on the facts and the law. As a matter of fact,

he found, based on the testimony, that “holdups” were not

realistically to be feared, that synch rights were regularly

obtained at fair prices after the recording had been

accomplished, that copyright proprietors would not wish

to incur CBS’s disfavor by attempting a “holdup,” and

that the whole claim was undercut by the turnover in the

8. Apart from the lack of

rr- -

‘

CBS inventory. Jd. at 775—

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factual support for the argument, Judge Lasker also

correctly rejected it on the ground that it is not a

consequence of the blanket license. If CBS would be

vulnerable to a “hold-up” when it tries to acquire per-

formance rights for music on a feature film it wishes to

rerun, that is a consequence of CBS’s failure to acquire

rerun performance rights at the time it acquired the film.

At that time CBS accepted the risk that it would one day

have to purchase performance rights for reruns, either as

part of the purchase price for a blanket license or at a

separate price for a license obtained directly from the

Pervading these assessments of each of the CBS

contentions of alleged barriers to direct licensing is one

indisputable fact that perhaps overshadows all others. If

CBS were to forgo the blanket license, seek direct licenses,

and then discover, contrary to the facts found by Judge

Lasker, that a competitive market among copyright own-

ers was not a feasible alternative to the blanket license, it

would be entitled, under the consent decree, to assure

itself of continued performing rights by immediately

obtaining a renewed blanket license. Indeed, Paragraph

IX of the ASCAP decree permits CBS to use any music

covered by a license application, without payment of fee,

subject to whatever fees are subsequently negotiated or

determined to be reasonable by the court if negotiations

‘CBS also contends that the blanket license impairs its ability to

add films to its inventory. Asserting a disadvantage vis-a-vis its

network competitors, CBS alleges that, lacking performance rights, it

would be precluded from bidding on films available to networks holding

blanket licenses. Apart from the fact that this argument concerns

competition among networks, not among copyright owners, it fails to

reckon with the possibility that CBS can negotiate an individual license

for the performance rights to music on a film, with the license to

become effective only upon CBS's acquisition of the film.

A-18

fail. Jd. at 743 n. 3. In short, the District Court has found

that CBS can feasibly obtain individual licenses from

competing copyright owners and that it incurs no risk in

endeavoring to do so. There is no basis in the record for

concluding that these findings by the District Court are

clearly erroneous.

Of course, the fact that CBS has failed to prove that

the blanket license restrains competition among copyright

owners does not guarantee that such competition will

occur if CBS or the other networks elect to forgo their

blanket licenses in the future. Uncertainty is created not

only by the normal risks of predicting the future bt also

by the special circumstances currently governing the

selection of music for network television programs. As

previously mentioned, approximately 90% of this music is

elected by the program packagers. If CBS forgoes its

blanket license, we cannot predict—indeed, the record

gives us no adequate basis for making a prediction—as to

how performance rights for this 90% will be purchased.

Perhaps CBS will inform the packagers that it will buy

programs only when performance rights have been ac-

quired by the production company. That would create an

incentive for the packagers to consider price of perform-

ance rights for individual songs in selecting music, espe-

cially outside theme or feature music. But the packagers

might decline to buy performance rights, preferring to

sell their programs to other networks that continue to

hold blanket licenses. To the extent that happ2ned, CBS, if

it wanted a program for which performance rights had

not been purchased, would have to purchase the rights for

music already selected and recorded, in which event no

meaningful price competition among copyright owners

A-19

would occur. Or it may happen that packagers will be so

anxious to sell their programs to CBS that they will

acquire performance rights, even though that might not

be their initial preference.

Another situation for which prediction is hazardous

concerns the CBS-produced programs that use music

spontaneously selected by the performers. The blanket

license, among its other virtues, assures CBS of the right

to air such programs, regardless of what music the per-

formers elect to play. Without a blanket license, CBS

would have to purchase performance rights after the

program was aired, or negotiate with ASCAP for some

modified form of program license to secure the right

perform any music in the ASCAP repertory only on

designated programs where music is spontaneously se-

lected, or forgo the telecasting of such programs.

We mention these alternatives (and there are surely

others) not to express any judgment upon them, but

simply to point out the difficulty of determining what the

market for performance rights will look like if CBS elects

to forgo the blanket license. Neither the District Court

nor we can predict that perfect competition will ensue.

But what the District Court has found, and what we

affirm, is that CBS has failed to prove that the existence of

the blanket license has restrained competition. Since the

blanket license is not a per se unlawful arrangement, its

restraining effect must be proved before § 1 liability can

be found. When, after a full trial, such proof is lacking,

the challenge to the blanket license is properly dismissed.

Affirmed.

APPENDIX B

OPINION OF THE COURT OF APPEALS

DENYING DEFENDANTS’ MOTIONS

FOR SUMMARY AFFIRMANCE

REPORTED AT 607 F.2d 543 (2d Cir. 1979)

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

COLUMBIA BROADCASTING SYSTEM, INC.,

Plaintiff- Appellant,

—against—

AMERICAN SOCIETY OF COMPOSERS,

AUTHORS & PUBLISHERS, et al.,

Defendants -Appellees.

No. 1389, Docket 75-7600

July 6, 1979

Before LUMBARD,* MOORE and GURFEIN, Circuit

Judges.

MOTION FOR SUMMARY JUDGMENT

Following remand from the Supreme Court, 441 U.S.

1,99 S.Ct. 1551, 60 L.Ed.2d 1 to this court upon review on

certiorari of our opinion filed August 8, 1977, 562 F.2d 130,

BMI and ASCAP move for summary judgment on the

ground that CBS failed to raise in this court ‘the legality

of defendants’ licensing practices under the rule of rea-

son.” Four considerations, among others, impel us to a

broad construction of the CBS position in this court.

“Hon. J. Edward Lumbard, Senior Circuit Judge, has been designated

in place of Judge Robert P. Anderson, deceased.

B-2

First, the majority opirion by Mr. Justice White

“remand[s] the cause for further appropriate proceed-

ings” (99S.Ct. at 1556) and states that the blanket license

“should be subjected to a more discriminatory exam-

ination under the rule of reason. It may not ultimately

survive the attack, but that is not the issue before us

today.” 99 S.Ct. at 1565.

Second, the dissenting justice, Mr. Justice Stevens,

the only justice to address the merits under the rule of

reason standard, actually found the blanket license to be

an unreasonable restraint of trade.

Third, the United States in its amicus brief in the

Supreme Court took “no position, however, on whether the

practice is an unreasonable restraint of trade in the

context of the network television industry.” 99 S.Ct. at

1560.

Fourth, this court found a lack of market necessity for

the blanket license in dealing with the network.

After noting that [w]e have never examined a prac-

tice like this one before” (99 S.Ct. at 1557), the Supreme

Court did not rule that price-fixing was not involved,

which would have been the end of the matter.

Accordingly, we think that, in the interests of an

ultimate solution of the question, we must scrutinize CBS’

arguments in terms of whether it intended to waive a

claim under the rule of reason standard, considering the

breadth of its arguments. We find no such intent. The

emphasis was simply on the harder point, per se unlawful-

ness, but CBS did argue the practical effects of the blanket

license, and did not exclude an application of the rule of

reason standard thereto.

B-3

We will not, at this time, expand on the relationship

between the standard which we set that market necessity

(limited to television networks) might justify the price-

fixing aspect of the exclusive blanket license and a rule of

reason standard, since we do not wish to foreclose unre-

stricted arguments on the issue.

We are convinced, moreover, that in the state of the

law on price-fixing per se in 1977 and in the light of the

CBS economic impact arguments relating to the alleged

unreasonable restraint of the exclusive blanket license,

both in terms of tie-in and price effect, the issue was

presented clearly enough to this court for us to have

passed on the question under the rule of reason.

We conclude, in the circumstances, that it would be

inequitable to hold, on narrow, technical or semantic

grounds that appellant did not raise the question ade-

quately.

We, accordingly, deny the motion for summary judg-

ment, and issue a scheduling order for briefing.

SCHEDULING ORDER

On remand from the Supreme Court, having denied

summary judgment of the decision of the District Court,

we order:

(1) that the parties address the issue of whether on

the present record in the District Court, this court is in a

position to decide whether the exclusive blanket license

tendered to CBS television network by ASCAP and BMI is

unlawful price-fixing and an unreasonable restraint of

trade under the rule of reason or as a misuse of copyright?

(2) if such record is inadequate, what is proposed for

the further progress of the case?

B-4

(3) if the record is adequate, should the exclusive

tender of a blanket or program license to the CBS tele-

vision network be prohibited or limited under the rule of

reason, or as a misuse of copyright?

(4) if, under the rule of reason or copyright misuse, it

should be determined that it is an antitrust violation for

ASCAP or BMI to issue a blanket license to a television

network for a single fee, would it necessarily be illegal to

negotiate and issue blanket licenses to individual radio or

television stations or to other users who perform copy-

righted music for profit? See 99 S.Ct. at 1561.

(5) if, under the rule of reason or copyright misuse, it

should be determined that it is an antitrust violation for

ASCAP and BMI to issue a blanket license to a television

network for a single fee, would it be equally illegal for the

members to authorize ASCAP to issue licenses for individ -

ual compositions based on prices determined by the copy-

right owners?

It is further requested that the United States,

pursuant to the suggestion of the Supreme Court (99 S.Ct.

at 1565 n. 44) continue in its role as amicus curiae and file

a brief concerning these issues at the time when appellee’s

brief is to be filed.

We note that if a party should desire to seek relief

with respect to the interim arrangement for license fees

payable to CBS, application may be made to Judge Lasker

or, if there be doubt as to his jurisdiction, application may

be made to this court for a remand for that purpose.

The parties will confer on a scheduling arrangement

for briefs and oral argument with the Office of Staff

Counsel.

APPENDIX C

OPINION OF THE SUPREME COURT

REPORTED AT 441 U.S. 1 (1979)

APPENDIX C

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1978

BROADCAST MUSIC, INC., ET AL.

Petitioners,

—against—

COLUMBIA BROADCASTING SYSTEM, INC.,

Respondent.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

No. 77-1578

Argued January 15, 1979

Decided April 17, 1979*

WHITE, J., delivered the opinion of the Court, in which

BURGER, C. J., and BRENNAN, STEWART, MARSHALL,

BLACKMUN, POWELL, and REHNQUIST, JJ., joined. STEVENS,

J., filed a dissenting opinion, post, p. C-26.

Amalya L. Kearse argued the cause for petitioners in

No. 77-1578. With her on the briefs were George A.

Davidson and Conley BE. Brian, Jr. Jay Topkis argued the

cause for petitioners in No. 77-1583. With him on the

briefs were Bi rnard Korma n, Simon H. Rifkind, Herman

Finkelstein, and Allan Blumstein.

* Together with No. 77-1583, American Society of Composers, Au-

thors and Publishers et al. v. Columbia Broadcasting System, Inc. et al.,

also on certiorari to the same court

Alan J. Hruska argued the cause for respondents in

both cases. With him on the briefs were John D. Appel and

Robert M. Sondak.

Deputy Solicitor General Easterbrook argued the cause

for the United States as amicus curiae urging reversal.

With him on the briefs were Solicitor General McCree.,

Assistant Attorney General Shenefield, William Alsup, John

J. Powers III, and Andrea Limmer.+

Mr. JUSTICE WHITE delivered the opinion of the

Court.

This case involves an action under the antitrust and

casting System, Inc. (CBS), against petitioners, American

Society of Composers, Authors and Publishers (ASCAP)

and Broadcast Music, Inc. (BMI), and their members and

affiliates.’ The basic question presented is whether the

issuance by ASCAP and BMI to CBS of blanket licenses to

copyrighted musical compositions at fees negotiated by

them is price fixing per se unlawful under the antitrust

laws.

+ Briefs of amici curiae urging reversal were filed by Irwin Karp

for the Authors League of America, Inc.; by Philip Elman and Robert

M. Lichtman for the Performing Right Society, Ltd., et al.: and by

Robert H. Bork for Aaron Copland et al.

Briefs of amici curiae urging affirmance were filed by Jra M.

Millstein for the All-Industry Television Music License Committee: by

Clarence Fried for American Broadcasting Companies, Ine. by David R.

Hyde for National Broadcasting Company, Inc.; by John H. Midlen. Jr..

for National Religious Broadcasters, Inc.; and by John L. Hill. Attorney

General of Texas, David M. Kendall, First Assistant Attorney General,

and Robert S. Bickerstaff and Susan Dasher, Assistant Attorneys

General, for the Universities of the State of Texas et al.

Irving Moskovitz filed a brief for the All-Industry Radio Music

License Committee as amicus curiae

‘The District Court certified the case as a defendant class action,

400 F. Supp. 737, 741 n. 2 (SDNY 1975).

C-3

CBS operates one of three national commercial tele-

vision networks, supplying programs to approximately 200

affiliated stations and telecasting approximately 7,500

network programs per year. Many, but not all, of these

programs make use of copyrighted music recorded on the

soundtrack. CBS also owns television and radio stations in

various cities. It is “ ‘the giant of the world in the use of

music rights,’” the “‘No. 1 outlet in the history of

999

entertainment.’ ”

Since 1897, the copyright laws have vested in the

owner of a copyrighted musical composition the exclusive

right to perform the work publicly for profit,’ but the legal

right is not self-enforcing. In 1914, Victor Herbert and a

handfu! of other composers organized ASCAP because

those who performed copyrighted music for profit were so

numerous and widespread, and most performances so

fleeting, that as a practical matter it was impossible for

the many individual copyright owners to negotiate with

and license the users and to detect unauthorized uses.

“ASCAP was organized as a ‘clearing- house’ for copyright

owners and users to solve these problems” associated with

the licensing of music. 400 F. Supp. 737, 741 (SDNY 1975).

As ASCAP operates today, its 22,000 members grant it

nonexclusive rights to license nondramatic performances

of their works, and ASCAP issues licenses and distributes

royalties to copyright owners in accordance with a sched-

ule reflecting the nature and amount of the use of their

music and other factors.

Id., at 771, quoting a CBS witness. CBS is also a leading music

publisher, with publishing subsidiaries affiliated with both ASCAP and

BMI, and is the world’s largest manufacturer and seller of records and

tapes. Jhid.

Act of Jan. 6, 1897, 29 Stat. 481.

C-4

BMI, a nonprofit corporation owned by members of

the broadcasting industry,‘ was organized in 1939, is

affiliated with or represents some 10,000 publishing com-

panies and 20,000 authors and composers, and operates in

much the same manner as ASCAP. Almost every domestic

copyrighted composition is in the repertory either of

ASCAP, with a total of three million compositions, or of

BMI, with one million. )

Both organizations operate primarily through blanket

-licenses, which give the licensees the right to perform any

and all of the compositions owned by the members or

affiliates as often as the licensees desire for a stated term.

Fees for blanket licenses are ordinarily a percentage of

total revenues or a flat dollar amount, and do not directly

depend on the amount or type of music used. Radio and

television broadcasters are the largest users of music, and

almost all of them hold blanket licenses from both ASCAP

and BMI. Until this litigation, CBS held blanket licenses

from both organizations for its television network on a

continuous basis since the late 1940’s and had never

attempted to secure any other form of license from either

ASCAP* or any of its members. /d., at 752-754.

The complaint filed by CBS charged various violations

of the Sherman Act‘ and the copyright laws.’ CBS argued

that ASCAP and BMI are unlawful monopolies and that

the blanket license is illegal price fixing, an unlawful

‘CBS was a leader of the broadcasters who formed BMI. but it

disposed of all of its interest in the corporation in 1959. 400 F. Supp., at

742.

* Unless the context indicates otherwise, references to ASCAP

alone in this opinion usually apply to BMI as well. See n. 20. infra

*°15 U.S.C. §8§1 and 2.

“CBS seeks injunctive relief for the antitrust violations and a

declaration of copyright misuse. 400 F. Supp., at 741.

C-5

tying arrangement, a concerted refusal to deal, and a

misuse of copyrights. The District Court, though denying

summary judgmert to certain defendants, ruled that the

practice did not fail within the per se rule. 337 F. Supp.

394, 398 (SDNY 1972). After an 8-week trial, limited to

the issue of liability, the court dismissed the complaint,

rejecting again the claim that the blanket license was

price fixing and a per se violation of § 1 of the Sherman

Act, and holding that since direct negotiation with indi-

vidual copyright owners is available and feasible there is

no undue restraint of trade, illegal tying, misuse of

copyrights, or monopolization. 400 F. Supp., at 781-783.

Though agreeing with the District Court’s factfind-

ing and not disturbing its legal conclusions on the other

antitrust theories of liability,” the Court of Appeals held

that the blanket license issued to television networks was

a form of price fixing illegal per se under the Sherman

Act. 562 F. 2d 130, 140 (CA2 1977). This conclusion,

without more, settled the issue of liability under the

Sherman Act, established copyright misuse,’ and required

reversal of the District Court’s judgment, as well as a

remand to consider the appropriate remedy.”

‘The Court of Appeals affirmed the District Court’s rejection of

CBS's monopolization and tying contentions but did not rule on the

District Court's conclusion that the blanket license was not an unrea

sonable restraint of trade. See 562 F. 2d 130, 132, 135, 141 n. 29 (CA2

1977 )

‘At CBS's suggestion, the Court of Appeals held that the chal-

lenged conduct constituted misuse of copyrights solely on the basis of

its finding of unlawful price fixing. /d., at 141 n. 29.

The Court of Appeals went on to suggest some guidelines as to

remedy, indicating that despite its conclusion on liability the blanket

license was not totally forbidden. The Court of Appeals said:

“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 lic: will not affect the price or

C-6

ASCAP and BMI petitioned for certiorari, presenting

the questions of the applicability of the per se rule and of

whether this constitutes misuse of copyrights. CBS did

not cross petition to challenge the failure to sustain its

other antitrust claims. We granted certiorari because of

the importance of the issues to the antitrust and copyright

laws. 489 U.S. 817 (1978). Because we disagree with the

Court of Appeals’ conclusions with respect to the per se

illegality of the blanket license, we reverse its judgment

and remand the cause for further appropriate proceed-

ings.

In construing and applying the Sherman Act’s ban

against contracts, conspiracies, and combinations in re-

straint of trade, the Court has held that certain agree-

ments or practices are so “plainly anticompetitive,” Na-

tional Society of Professional Engineers v. United States,

435 U.S. 679, 692 (1978); Continental T. V., Inc. v. GTE

Sylvania Inc., 483 U. S. 36, 50 (1977), and so often

“lack ...any redeeming virtue,” Northern Pac. R. Co. v.

negotiations for direct licenses, the blanket license need not be prohib-

ited in all 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 infringement 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 copy-

right 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 competition among the individual members with respect to

those networks which wish to engage in per use licensing.” Jd, at 440

(footnotes omitted).

C-7

United States, 356 U. S. 1, 5 (1958), that they are con-

clusively presumed illegal without further examination

under the rule of reason generally applied in Sherman Act

cases. This per se rule is a valid and useful tool of antitrust

policy and enforcement.''’ And agreements among com-

petitors to fix prices on their individual goods or services

are among those concerted activities that the Court has

held to be within the per se category.'’* But easy labels do

not always supply ready answers.

To the Court of Appeals and CBS, the blanket license

involves “price fixing” in the literal sense: the composers

and publishing houses have joined together into an or-

ganization that sets its price for the blanket license it

sells.’ But this is not a question simply of determining

11] ¢¢

This principle of per se unreasonableness not only makes the

type of restraints which are proscribed by the Sherman Act more

certain to the benefit of everyone concerned, but it also avoids the

necessity for an incredibly complicated and prolonged economic in-

vestigation into the entire history of the industry involved, as well as

related industries, in an effort to determine at large whether a

particular restraint has been unreasonable—an inquiry so often wholly

fruitless when undertaken.” Northern Pac. R. Co. v. United States, 356

U.S. 1, 5 (1958).

See Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 n. 16

(1977); United States v. Topco Associates, Inc., 405 U.S. 596, 609 n. 10

(1972).

‘* See cases discussed in n. 14, infra.

CBS also complains that it pays a flat fee regardless of the

amount of use it makes of ASCAP compositions and even though many

of its programs contain little or no music. We are unable to see how

that alone could make out an antitrust violation or misuse of copy-

rights:

“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... . Petitioner cannot

complain because it must pay royalties whether it uses Hazeltine

C-8

whether two or more potential competitors have literally

“fixed” a “price.” As generally used in the antitrust field,

“price fixing” is a shorthand way of describing certain

categories of business behavior to which the per se rule has

been held applicable. The Court of Appeals’ literal

approach does not alone establish that this particular

practice is one of those types or that it is “plainly

anticompetitive” and very likely without “redeeming

virtue.” Literalness is overly simplistic and often over-

broad. When two partners set the price of their goods or

services they are literally “price fixing,” but they are not

per se in violation of the Sherman Act. See United States

v. Addyston Pipe & Steel Co., 85 F. 271, 280 (CA6 1898),

aff'd, 175 U. S. 211 (1899). Thus, it is necessary to

characterize the challenged conduct as falling within or

without that category of behavior to which we apply the

label ‘per se price fixing.” That will often, but not always,

be a simple matter."

Consequently, as we recognized in United States v.

Topco Associates, Inc., 405 U. 8. 596, 607-608 (1972), “[i]t

is only after considerable experience with certain

business relationships that courts classify them as per se

patents or not. What it acquired by the agreement into which it

entered was the privilege to use any or all of the patents and

developments as it desired to use them.” Automatic Radio Mfg. Co. v.

Hazeltine Research, Inc., 339 U.S. 827, 834 (1950).

See also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100

(1969).

“ Cf., e.g., United States v. McKesson & Robbins, Inc., 351 U.S. 305

(1956) (manufacturer/wholesaler agreed with independent whole-

salers on prices to be charged on products it manufactured); United

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

a substantial part of an industry agreed to purchase “surplus” gasoline

with the intent and necessary effect of increasing the price); United

States v. Trenton Potteries Co., 273 U.S. 392 (1927) (manufacturers and

distributors of 82% of certain vitreous pottery fixtures agreed to sell at

uniform prices).

C-9

violations... .”’ See White Motor Co. v. United States, 372

U.S. 253, 263 (1963). We have never examined a practice

like this one before; indeed, tne Court of Appeals recog-

nized that “[{i]n dealing with performing rights in the

music industry we confront conditions both in copyright

law and in antitrust law which are sui generis.” 562 F. 2d,

at 1832. And though there has been rather intensive

antitrust scrutiny of ASCAP and its blanket licenses, that

experience hardly counsels that we should outlaw the

blanket license as a ver se restraint of trade.

This and other cases involving ASCAP and its licens-

ing practices have arisen out of the efforts of the creators

of copyrighted musical compositions to collect for the

public performance of their works, as they are entitled to

do under the Copyright Act. As already indicated,

ASCAP and BMI originated to make possible and to

facilitate dealings between copyright owners and those

who desire to use their music. Both organizations plainly

involve concerted action in a large and active line of

commerce, and it is not surprising that, as the District

Court found, “|n]Jeither ASCAP nor BMI is a stranger to

antitrust litigation.” 400 F. Supp., at 743.

The Department of Justice first investigated allega-

tions of anticompetitive conduct by ASCAP over 50 years

ago.'’ A criminal complaint was filed in 1934, but the

Government was granted a midtrial continuance and

never returned to the courtroom. In separate complaints

in 1941, the United States charged that the blanket

Cohn, Music, Radio Broadcasters and the Sherman Act, 29 Geo. L.

J. 407, 424 n. 91 (1941).

C-10

license, which was then the only license offered by ASCAP

and BMI, was an illegal restraint of trade and that

arbitrary prices were being charged as the result of an

illegal copyright pool.'’ The Government sought to enjoin

ASCAP’s exclusive licensing powers and to require a

different form of licensing by that organization. The case

was settled by a consent decree that imposed tight re-

strictions on ASCAP’s operations." Following complaints

relating to the television industry, successful private liti-

gation against ASCAP by movie theatres,"* and a Govern-

ment challenge to ASCAP’s arrangements with similar

foreign organizations, the 1941 decree was reopened and

extensively amended in 1950."

Under the amended decree, which still substantially

controls the activities of ASCAP, members may grant

ASCAP only nonexclusive rights to license their works for

public performance. Members, therefore, retain the

rights individually to license public performances, along

with the rights to license the use of their compositions for

other purposes. ASCAP itself is forbidden to grant any

license to perform one or more specified compositions in

the ASCAP repertory unless both the user and the owner

have requested it in writing to do so. ASCAP is required

to grant to any user making written application a

nonexclusive license to perform all ASCAP compositions,

EF. g., complaint in United States vy. ASCAP, Civ. No. 18-95 (SDNY

1941), pp. 3-4.

" United States v. ASCAP, 1940-1943 Trade Cases 9 56,104 (SDNY

1941).

See Alden- Rochelle, Inc. v. ASCAP, 80 F. Supp. 888 (SDNY 1948):

M. Witmark & Sons v. Jenson, 80 F. Supp. 843 (Minn. 1948), appeal

dismissed sub nom. M. Witmark & Sons v. Berger Amusement Co., 177 F.

2d 515 (CA8 1949).

' United States v. ASCAP, 1950-1951 Trade Cases 9 62,595 (SDNY

1950).

C-11

either for a period of time or on a per-program basis.

ASCAP may not insist on the blanket license, and the fee

for the per-program license, which is to be based on the

revenues for the program on which ASCAP music is

played, must offer the applicant a genuine economic choice

between the per-program license and the more common

blanket license. If ASCAP and a putative licensee are

unable to agree on a fee within 60 days, the applicant may

apply to the District Court for a determination of a

reasonable fee, with ASCAP having the burden of proving

reasonableness.”

The 1950 decree, as amended from time to time,

continues in effect, and the blanket license continues to be

the primary instrument through which ASCAP conducts

its business under the decree. The courts have twice

construed the decree not to require ASCAP to issue

licenses for selected portions of its repertory.’ It also

remains true that the decree guarantees the legal avail-

ability of direct licensing of performance rights by

ASCAP members; and the District Court found, and in

“BMI is ina similar situation. The original decree against BMI is

reported as United States v. BMI, 1940-1943 Trade Cases 4 56,096 (ED

Wis. 1941). A new consent judgment was entered in 1966 following a

monopolization complaint filed in 1964. United Stites v. BMI, 1966

Trade Cases § 71,941 (SDNY). The ASCAP and BMI decrees do vary in

some respects. The BMI decree does not specify that BMI may only

obtain nonexclusive rights from its affiliates or that the District Court

may set the fee if the parties are unable to agree. Nonetheless, the

parties stipulated, and the courts below accepted, ‘that CBS could

secure direct licenses from BMI affiliates with the same ease or

difficulty, as the case may be, as from ASCAP members.” 400 F. Supp.,

at 745.

*' United States v. ASCAP (Application of Shenandoah Valley

Broadcasting, Inc.), 208 F. Supp. 896 (SDNY 1962), aff’d, 331 F.2d 117

(CA2), cert. denied, 377 U. S. 997 (1964); United States v. ASCAP

(Application of National Broadcasting Co.), 1971 Trade Cases §] 73,491

(SDNY 1970). See also United States v. ASCAP ( Motion of Metromedia,

Inc.), 341 F.2d 1003 (CA2 1965).

C-12

this respect the Court of Appeals agreed, that there are no

practical impediments preventing direct dealing by the

television networks if they so desire. Historically, they

have not done so. Since 1946, CBS and other television

networks have taken blanket licenses from ASCAP and

BMI. It was not until this suit arose that the CBS network

demanded any other kind of license.”

Of course, a consent judgment, even one entered at

the behest of the Antitrust Division, does not immunize

the defendant from liability for actions, including those

contemplated by the decree, that violate the rights of

nonparties. See Sam Fox Publishing Co. v. United States,

366 U.S. 683, 690 (1961), which involved this same decree.

But it cannot be ignored that the Federal Executive and

Judiciary have carefully scrutinized ASCAP and the chal-

lenged conduct, have imposed restrictions on various of

ASCAP’s practices, and, by the terms of the decree, stand

ready to provide further consideration, supervision, and

perhaps invalidation of asserted anticompetitive prac-

tices.” In these circumstances, we have a unique indicator

that the challenged practice may have redeeming com-

petitive virtues and that the search for those values is not

almost sure to be in vain.*' Thus, although CBS is not

bound by the Antitrust Division’s actions, the decree is a

* NBC did, in 1971, request an annual blanket license for 2,217

specific ASCAP compositions most frequently used on its variety shows.

It intended to acquire the remaining rights to background and theme

music through direct transactions by it and its program packagers. See

United States v. ASCAP (Application of National Broadcasting Co.),

supra,

“1950-1951 Trade Cases §] 62,595, p. 63,756.

“Cf. Continental T. V., Inc. v. GTE Sylvania Ine., 483 U.S., at 50 n.

16. Moreover, unthinking application of the per se rule might upset the

balancing of economic power and of procompetitive and anticompeti-

tive effects presumably worked out in the decree.

C-13

fact of economic and legal life in this industry, and the

Court of Appeals should not have ignored it completely in

analyzing the practice. See id., at 694-695. That fact

alone might not remove a naked price-fixing scheme from

the ambit of the per se rule, but, as discussed infra, Part

III, here we are uncertain whether the practice on its face

has the effect, or could have been spurred by the purpose,

of restraining competition among the individual com-

posers.

After the consent decrees, the legality of the blanket

license was challenged in suits brought by certain ASCAP

members against individual radio stations for copyright

infringement. The stations raised as a defense that the

blanket license was a form of price fixing illegal under the

Sherman Act. The parties stipulated that it would be

nearly impossible for each radio station to negotiate with

each copyright holder separate licenses for the perform-

ance of his works on radio. Against this background, and

relying heavily on the 1950 consent judgment, the Court

of Appeals for the Ninth Circuit rejected claims that

ASCAP was a combination in restraint of trade and that

the blanket license constituted illegal price fixing. KA 91,

Inc. v. Gershwin Publishing Corp., 372 F. 2d 1 (1967), cert.

denied, 389 U.S. 1045 (1968).

The Department of Justice, with the principal respon-

sibility for enforcing the Sherman Act and administering

the consent decrees relevant to this case, agreed with the

result reached by the Ninth Circuit. In a submission

amicus curiae opposing one station’s petition for certio-

rari in this Court, the Department stated that there must

be “some kind of central licensing agency by which

to all who wish to use them.” Memorandum for United

C-14

States as Amicus Curiae on Pet. for Cert. in K-91, Ine. v.

Gershwin Publishing Corp., O. T. 1967, No. 147, pp. 10-11.

And the Department elaborated on what it thought that

fact meant for the proper application of the antitrust laws

in this area:

“The Sherman Act has always been dis-

criminatingly applied in the light of economic reali-

ties. There are situations in which competitors have

been permitted to form joint selling agencies or other

pooled activities, subject to strict limitations under

the antitrust laws to guarantee against abuse of the

collective power thus created. Associated Press v.

United States, 326 U.S. 1; United States v. St. Louis

Terminal, 224 U. S. 383; Appalachian Coals, Inc. v.

United States, 288 U.S. 344; Chicago Board of Trade v.

United States, 246 U.S. 231. This case appears to us to

involve such a situation. The extraordinary number 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 com-

position, and the ephemeral! nature of each perform-

ance all combine to create unique market conditions

for performance rights to recorded music.” Jd., at 10

(footnote omitted).

The Depa. tment concluded that, in the circumstances

of that case, the blanket licenses issued by ASCAP to

individual radio stations were neither a per se violation of

the Sherman Act nor an unreasonable restraint of trade.

As evidenced by its amicus brief in the present case,

the Department remains of that view. Furthermore, the

C-15

United States disagrees with the Court of Appeals in this

case and urges that the blanket licenses, which the con-

sent decree authorizes ASCAP to issue to television net-

works, are not per se violations of the Sherman Act. It

takes no position, however, on whether the practice is an

unreasonable restraint of trade in the context of the

network television industry.

Finally, we note that Congress itself, in the new

and similar practices. Congress created a compulsory

blanket license for secondary transmissions by cable tele-

vision systems and provided that “[n]otwithstanding any

provisions of the antitrust laws, ... any claimants may

agree among themselves as to the proportionate division

of compulsory licensing fees among them, may lump their

claims together and file them jointly or as a single claim,

or may designate a common agent to receive payment on

their behalf.” 17 U.S.C. App. § 111 (d)(5)(A). And the

newly created compulsory license for the use of copy-

righted compositions in jukeboxes is also a blanket license,

which is payable to the performing-rights societies such as

ASCAP unless an individual copyright holder can prove

his entitlement to a share, § 116(c)(4). Moreover, in

requiring noncommercial broadcasters to pay for their use

of copyrighted music, Congress again provided that

“(njotwithstanding any provision of the antitrust laws”

negotiate, agree to, pay, or receive payments.” § 118(b).

Though these provisions are not directly controlling, they

do reflect an opinion that the blanket license, and ASCAP,

are economically beneficial in at least some circumstances.

There have been District Court cases holding various

ASCAP practices, including its licensing practices, to be

C-16

violative of the Sherman Act,” but even so, there is no

nearly universal view that either the blanket or the per-

program licenses issued by ASCAP at prices negotiated by

it are a form of price fixing subject to automatic con-

demnation under the Sherman Act, rather than to a

careful assessment under the rule of reason.

Of course, we are no more bound than is CBS by the

views of the Department of Justice, the results in the prior

lower court cases, or the opinions of various experts about

the merits of the blanket license. But while we must

independently examine this practice, all those factors

should caution us against too easily finding blanket licens-

ing subject to per se invalidation.

As a preliminary matter, we are mindful that the

Court of Appeals’ holding would appear to be quite diffi-

cult to contain. If, as the court held, there is a per se

antitrust violation whenever ASCAP issues a blanket

license to a television network for a single fee, why would

it not also be automatically illegal for ASCAP to negotiate

and issue blanket licenses to individual radio or television

stations or to other users who perform copyrighted music

See cases cited n, 18, supra. Those cases involved licenses sold to

individual movie theaters to “perform” compositions already on the

motion pictures’ soundtracks. ASCAP had barred its members from

assigning performing rights to movie producers at the same time

recording rights were licensed, and the theaters were effectively unable

to engage in direct transactions for performing rights with individual

C-17

for profit?’ Likewise, if the present network licenses

issued through ASCAP on behalf of its members are per se

violations, why would it not be equally illegal for the

members to authorize ASCAP to issue licenses estab-

lishing various categories of uses that a network might

have for copyrighted music and setting a standard fee for

“ach described use”

Although the Court of Appeals apparently thought

the blanket license could be saved in some or even many

applications, it seems to us that the per se rule does not

accommodate itself to such flexibility and that the obser-

vations of the Court of Appeals with respect to remedy

tend to impeach the per se basis for the holding of

liability.’

“ Certain individual television and radio stations, appearing here

as amici curiae, argue that the per se rule should extend to ASCAP’s

blanket licenses with them as well. The television stations have filed an

antitrust suit to that effect. Buffalo Broadcasting Co. v, ASCAP, 78 Civ

5670 (SDNY, filed Nov, 27, 1978).

“See n. 10, supra. The Court of Appeals would apparently not

outlaw the blanket license across the board but would permit it in

various circumstances where it is deemed necessary or sufficiently

desirable. It did not even enjoin blanket licensing with the television

networks, the relief it realized would normally follow a finding of per se

illegality of the license in that context. Instead, as requested by CBS, it

remanded to the District Court to require ASCAP to offer in addition to

blanket licensing some competitive form of per-use licensing. But per-

use licensing by ASCAP, as recognized in the consent decrees, might be

even more susceptible to the per se rule than blanket licensing.

The rationale for this unusual relief in a per se case was that [t]he

blanket license is not simply a ‘naked restraint’ ineluctably doomed to

extinction,” 562 F.2d, at 140. To the contrary, the Court of Appeals

found that the blanket license might well “serve a market need” for

some, /hid. This, it seems to us, is not the per se approach, which does

not yield so readily to circumstances, but in effect is a rather bobtailed

application of the rule of reason, bobtailed in the sense that it is

unaccompanied by the necessary analysis demonstrating why the

particular licensing system is an undue competitive restraint,

C-18

CBS would prefer that ASCAP be authorized, indeed

directed, to make all its compositions available at standard

per-use rates within negotiated categories of use. 400 F.

Supp., at 747 n. 7." But if this in itself or in conjunction

with blanket licensing constitutes illegal price fixing by

forbidding ASCAP to issue any blanket license or to

negotiate any fee except on behalf of an individual mem-

ber for the use of his own copyrighted work or works.”"

Thus, we are called upon to determine that blanket licens-

ing is unlawful across the board. We are quite sure,

however, that the per se rule does not require any such

holding.

In the first place, the line of commerce allegedly being

restrained, the performing rights to copyrighted music.

exists at all only because of the copyright laws. Those who

would use copyrighted music in public performances must

secure consent from the copyright owner or be liable at

least for the statutory damages for each infringement

and, if the conduct is willful and for the purpose of

financial gain, to criminal penalties.” Furthermore, noth-

“Surely, if ASCAP abandoned the issuance of all licenses and

confined its activities to policing the market and suing infringers, it

could hardly be said that member copyright owners would be in

violation of the antitrust laws by not having a common agent issue per

use licenses. Under the copyright laws, those who publicly perform

copyrighted music have the burden of obtaining prior consent, Cf

Zenith Radio Corp v. Hazeltine Research, Inc.. 895 U. S., at 189-140

“In its complaint, CBS alleged that it would be “wholly impracti

cable” for it to obtain individual licenses directly from the composers

and publishing houses, but it now says that it would be willing to do

exactly that if ASCAP were enjoined from granting blanket licenses to

CBS or its competitors in the network television business

"17 U.S. C. App. § 506.

C-19

ing in the Copyright Act of 1976 indicates in the slightest

that Congress intended to weaken the rights of copyright

owners to control the public performance of musical com-

positions. Quite the contrary is true.”’ Although the

prices among themselves or otherwise to violate the anti-

trust laws, we would not expect that any market arrange-

ments reasonably necessary to effectuate the rights that

are granted would be deemed a per se violation of the

Sherman Act. Otherwise, the commerce anticipated by

the Copyright Act and protected against restraint by the

Sherman Act would not exist at all or would exist only asa

pale reminder of what Congress envisioned.”

More generally, in characterizing this conduct under

the per se rule,” our inquiry must focus on whether the

effect and, here because it tends to show effect, see United

State x Vv. [nited State Ss Gypsu nei Co.. 438 U. -. 422, 436 iB 13

See Koenigsberg, The 1976 Copyright Act: Advances for the

Creator, 26 Cleve. St. L. Rev. 515, 524, 528 ( 1977)

(‘f » ery Neu York Stor ke Bre handge, 373 i. .. 341 ( 1963).

Because a musical composition can be “consumed” by many differ-

t people at the same time and without the creator’s knowledge, the

ner’ has no real way to demand reimbursement for the use of his

property except through the copyright laws and an effective way to

niorce those leva rights See Tue ntieth Co ntury Musi Corp V Atke n,

22 |S. 151, 162 (1975). It takes an organization of rather large size

monitor most or all uses and to deal with users on behalf of the

mposer Moreover, it is inefficient to have too many such organiza-

juplicating each other's monitoring of use

The serutiny occasionally required must not merely subsume the

indensome analysis required under the rule of reason, see National

| Engineer United States, 435 U.S. 679, 690-692

‘Tp ri ve should apply the rule of reason from the start. That is

hy the per x rule not employed until after considerable experience

th the ¢ ‘ { } wor red restr: rit

, » , ss ;

C-20

(1978), the purpose of the practice are to threaten the

proper operation of our predominantly free-market econ-

omy—that is, whether the practice facially appears to be

one that would always or almost always tend to restrict

competition and decrease output, and in what portion of

the market, or instead one designed to “increase economic

efficiency and render markets more, rather than less,

competitive.” Jd., at 441 n. 16; see National Society of

Professional Engineers v. United States, 435 U. S., at 688;

Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S., at 50

n. 16; Northern Pac. R. Co. v. United States, 356 U. S., at 4.

The blanket license, as we see it, is not a “naked

restrain[t] of trade with no purpose except stifling of

competition,” White Motor Co. v. United States. 372 U. S.

253, 263 (1963), but rather accompanies the integration of

sales, monitoring, and enforcement against unauthorized

Antitrust § 59, p. 154 (1977). As we have already

indicated, ASCAP and the blanket license developed to-

gether out of the practical situation in the marketplace:

thousands of users, thousands of copyright owners, and

millions ef compositions. Most users want unplanned,

rapid, and indemnified access to any and all of the reper-

tory of compositions, and the owners want a reliable

method of collecting for the use of their copyrights.

Individual sales transactions in this industry are quite

expensive, as would be individual monitoring and enforce-

ment, especially in light of the resources of single com-

posers. Indeed, as both the Court of Appeals and CBS

recognize, the costs are prohibitive for licenses with indi-

vidual radio stations, nightclubs, and restaurants, 562 F.

2d, at 140 n. 26, and it was in that milieu that the blanket

license arose.

C-21

A middleman with a blanket license was an obvious

necessity if the thousands of individual negotiations, a

virtual impossibility, were to be avoided. Also, individual

fees for the use of individual compositions would pre-

suppose an intricate schedule of fees and uses, as well as a

difficult and expensive reporting problem for the user and

policing task for the copyright owner. Historically, the

market for public-performance rights organized itself

largely around the single-fee blanket license, which gave

unlimited access to the repertory and reliable protection

against infringement. When ASCAP’s major and user-

created competitor, BMI, came on the scene, it also turned

to the blanket license.

With the advent of radio and television networks,

market conditions changed, and the necessity for and

advantages of a blanket license for those users may be far

less obvious than is the case when the potential users are

individual television or radio stations, or the thousands of

other individuals and organizations performing copy-

righted compositions in public.** But even for television

network licenses, ASCAP reduces costs absolutely by

creating a blanket license that is sold only a few, instead

of thousands,*” of times, and that obviates the need for

closely monitoring the networks to see that they do not

use more than they pay for.** ASCAP also provides the

necessary resources for blanket sales and enforcement,

“ And of course changes brought about by new technology or new

marketing techniques might also undercut the justification for the

practice.

* The District Court found that CBS would require between 4,000

and 8,000 individual license transactions per year. 400 F. Supp., at 762.

* To operate its system for distributing the license revenues to its

members, ASCAP relies primarily on the networks’ records of which

compositions are used.

C-22

resources unavailable to the vast majority of composers

and publishing houses. Moreover, a bulk license of some

type is a necessary consequence of the integration neces-

sary to achieve these efficiencies, and a necessary con-

sequence of an aggregate license is that its price must be

established.

This substantial lowering of costs, which is of course

potentially beneficial to both sellers and buyers, differ-

entiates the blanket license from individual use licenses.

The blanket license is composed of the individual com-

positions plus the aggregating s: rvice. Here, the whole is

truly greater than the sum of its parts; it is, to some

extent, a different product. The blanket license has

certain unique characteristics: It allows the licensee

immediate use of covered compositions, without the delay

of prior individual negotiations,” and great flexibility in

the choice of musical material. Many consumers clearly

prefer the characteristics and cost advantages of this

marketable package,” and even small performing-rights

societies that have occasionally arisen to compete with

See Timberg, The Antitrust Aspects of Merchandising Modern

Music: The ASCAP Consent Judgment of 1950, 19 Law & Contemp.

Prob. 294, 297 (1954) (“The disk-jockey’s itchy fingers and the band-

leader’s restive baton, it is said, cannot wait for contracts to be drawn

with ASCAP’s individual publisher members, much less for the formal

acquiescence of a characteristically unavailable composer or author’’).

Significantly, ASCAP deals only with nondramatic performance rights.

Because of their nature, dramatic rights, such as for musicals, can be

negotiated individually and well in advance of the time of perform-

ance. The same is true of various other rights, such as sheet music,

recording, and synchronization, which are licensed on an individual

hasis

“Cf. United States v. Grinnell Corp , oe

L'nited States Philadelphia Nat Bank. 37.

S$. 563, 572-573 (1966):

1U.S. 321, 356-357 (1963)

C-23

ASCAP and BMI have offered blanket licenses.” Thus, to

the extent the blanket license is a different product,

ASCAP is not really a joint sales agency offering the

individual goods of many sellers, but is a separate seller

offering its blanket license, of which the individual com-

positions are raw material.” ASCAP, in short, made a

market in which individual composers are inherently

unable to compete fully effectively."

Finally, we have some doubt—enough to counsel

against application of the per se rule—about the extent to

which this practice threatens the “central nervous system

of the economy,” United States v. Socony- Vacuum Oil Co.,

310 U.S. 150, 226 n. 59 (1940), that is, competitive pricing

as the free market’s means of allocating resources. Not all

“ Comment, Music Copyright Associations and the Antitrust Laws,

25 Ind. L. J. 168, 170 (1950). See also Garner, United States v. ASCAP:

The Licensing Provisions of the Amended Final Judgment of 1950, 23

Bull. Copyright Soc. 119, 149 (1975) (“no performing rights are

licensed on other than a blanket basis in any nation in the world”).

" Moreover, because of the nature of the product—a composition

can be simultaneously “consumed” by many users—composers have

numerous markets and numerous incentives to produce, so the blanket

license is unlikely to cause decreased output, one of the normal

undesirable effects of a cartel. And since popular songs get an

increased share of ASCAP’s revenue distributions, composers compete

even within the blanket license in terms of productivity and consumer

satisfaction.

"Cf. United States v. Socony-Vacuum Oil Co., 310 U. S., at 217

(distinguishing Chicago Bd. of Trade v. United States, 246 U. 5. 231

(1918), on the ground that among the effects of the challenged rule

there ‘was the creation of a public market”); United States v. Trenton

Potteries Co., 273 U.S., at 401 (distinguishing Chicago Bd. of Trade on

the ground that it did not involve “a price agreement among com-

petitors in an open market”).

C-24 /

have an impact on price are per se violations of the

Sherman Act or even unreasonable restraints. Mergers

among competitors eliminate competition, including price

competition, but they are not per se illegal, and many of

them withstand attack unger any existing antitrust

standard. Joint ventures and other cooperative arrange-

ments are also not usually’ unlawful, at least not as price-

fixing schemes, where the agreement on price is necessary

to market the product at all.

Here, the blanket-license fee is not set by competition

among individual copyright owners, and it is a fee for the

use of any of the compositions covered by the license. But

the blanket license cannot be wholly equated with a simple

horizontal arrangement among competitors. ASCAP does

set the price for its blanket license, but that license is

quite different from anything any individual owner could

issue. The individual composers and authors have not

agreed either to sell individually in any other market or to

use the blanket license to mask price fixing in such other

markets.” Moreover, the substantial restraints placed on

ASCAP and its members by the consent decree must not

be ignored. The District Court found that there was no

legal, practical, or conspiratorial impediment to CBS’s

obtaining individual licenses; CBS, in short, had a real

choice.

With this background in mind, which plainly enough

indicates that over the years, and in the face of available

alternatives, the blanket license has provided an accept-

able mechanism for at least a large part of the market for

the performing rights to copyrighted musical com-

" “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’ (compositions) offered

by each of them.” 400 F. Supp., at 748.

positions, we cannot agree that it should automatically be

declared illegal in all of its many manifestations. Rather,

when attacked, it should be subjected to a more dis-

criminating examination under the rule of reason. It may

not ultimately survive that attack, but that is not the issue

before us today.

As we have noted, n. 27, supra, the enigmatic remarks

of the Court of Appeals with respect to remedy appear to

have departed from the court’s strict, per se approach and

to have invited @ more careful analysis. But this left the

general import of its judgment that the licensing prac-

tices of ASCAP and BMI under the consent decree are per

se violations of the Sherman Act. We reverse that judg-

ment, and the copyright misuse judgment dependent

upon it, see n. 9, supra, and remand for further proceed -

ings to consider any unresolved issues that CBS may have

properly brought to the Court of Appeals.” Of course, this

will include an assessment under the rule of reason of the

blanket license as employed in the television industry, if

that issue was preserved by CBS in the Court of Appeals."

“Tt is argued that the judgment of the Court of Appeals should

nevertheless be affirmed on the ground that the blanket license is a

tying arrangement in violation of § 1 of the Sherman Act or on the

ground that ASCAP and BMI have monopolized the relevant market

contrary to § 2. The District Court and the Court of Appeals rejected

both submissions, and we do not disturb the latter’s judgment in these

respects, particularly since CBS did not file its own petition for

certiorari challenging the Court of Appeals’ failure to sustain its tying

and monopolization claims.

"The Court of Appeals did not address the rule-of-reason issue,

and BMI insists that CBS did not preserve the question in that court.

In any event, if the issue is open in the Court of Appeals, we prefer that

that court first address the matter. Because of the United States’

interest in the enforcement of the consent decree, we assume it will

continue to play a role in this litigation on remand

C-26

The judgment of the Court of Appeals is reversed and

the case is remanded to that court for further proceedings

consistent with this opinion.

It is so ordered.

MR. JUSTICE STEVENS, dissenting.

The Court holds that ASCAP’s blanket license is not a

species of price fixing categorically forbidden by the

Sherman Act. I agree with that holding. The Court

remands the case to the Court of Appeals, leaving open the

question whether the blanket license as employed by

ASCAP and BMI is unlawful under a rule-of-reason

inquiry. I think that question is properly before us now

and should be answered affirmatively.

There is ample precedent for affirmance of the judg-

ment of the Court of Appeals on a ground that differs

from its rationale, provided of course that we do not

modify its judgment.' In this case, the judgment of the

Court of Appeals was not that blanket licenses may never

be offered by ASCAP and BMI. Rather, its judgment

directed the District Court to fashion relief requiring

them to offer additional forms of license as well.? Even

though that judgment may not be consistent with its

stated conclusion that the blanket license is “illegal per se”’

as a kind of price fixing, it is entirely consistent with a

conclusion that petitioners’ exclusive all or-nothing

blanket-license policy violates the rule of reason.’

‘See United States v. New York Telephone Co., 434 U.S. 159, 166 n. 8:

Dayton Board of Education v. Brinkman, 433 U.S. 406, 419; Massachu-

setts Mutual Life Ins. Co. v. Ludwig, 426 U.S. 479, 480-481; United States

v. American Railway Express Co., 265 U.S. 425, 435.

562 F. 2d 130, 140-141 (CA2 1977).

‘See ante, at {C-17 n.27 | (describing relief ordered by Court of

Appeals as “unusual” for a per se case, and suggesting that that court's

decision appears more consistent with a rule-of-reason approach)

C-27

The Court of Appeals may well so decide on remand.

In my judgment, however, a remand is not necessary.’ The

record before this Court is a full one, reflecting extensive

discovery and eight weeks of trial. The District Court’s

findings of fact are thorough and well supported. They

clearly reveal that the challenged policy does have a

significant adverse impact on competition. I would there-

fore affirm the judgment of the Court of Appeals.

In December 1969, the president of the CBS television

network wrote to ASCAP and BMI requesting that each

“promptly ... grant a new performance rights license

which will provide, effective January 1, 1970, for payments

measured by the actual use of your music.’”® ASCAP and

BMI each responded by stating that it considered CBS’s

request to be an application for a license in accordance

with the provisions of its consent decree and would treat it

as such,’ even though neither decree provides for licensing

‘That the rule-of-reason issues have been raised and preserved

throughout seems to me clear. See 562 F. 2d, at 184. (“CBS contends

that the blanket licensing method is not only an illegal tie-in or

blockbooking which in practical terms is coercive in effect, but is also an

illegal price-fixing device, a per se violation... .”’): id., at 141 n. 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 er-

roneous. The § 2 claim must therefore fail at this time and on this

record’); Brief for Respondents 41.

400 F. Supp. 737, 753 (SDNY 1975)

" ASCAP responded in a letter from its general counsel, stating

that it would consider the request at its next board of directors

meeting, and that it regarded it as an application for a license

consistent with the decree. The letter from BMI’s president stated

"The BMI Consent Decree provides for several alternative licenses and

we are ready to explore any of these with you.” /d., at 758-754

C-28

on a per-composition or per-use basis.’ Rather than

pursuing further discussion, CBS instituted this suit.

Whether or not the CBS letter is considered a proper

demand for per-use licensing is relevant, if at all, only on

the question of relief. For the fact is, and it cannot

seriously be questioned, that ASCAP and BMI have stead-

fastly adhered to the policy of only offering overall blan-

ket or per-program licenses, notwithstanding requests

for more limited authorizations. Thus, ASCAP rejected a

1971 request by NBC for licenses for 2,217 specific com-

positions,’ as well as an earlier request by a group of

television stations for more limited authority than the

blanket licenses which they were then purchasing.'’ Nei-

ther ASCAP nor BMI has ever offered to license anything

less than its entire portfolio, even on an experimental

basis. Moreover, if the response to the CBS letter were not

sufficient to characterize their consistent policy, the de-

fense of this lawsuit surely is. It is the refusal to license

anything less than the entire repertoire—rather than the

decision to offer blanket licenses themselves—that raises

the serious antitrust questions in this case

‘See ante, at (C-11 & n.21]

‘The 1941 decree requires ASCAP to offer per-program licenses as

an alternative to the blanket license. United States v. ASCAP, 1940-

1943 Trade Cases § 56,104, p. 404 (SDNY). Analytically, however, there

is little difference between the two. A per-program license also covers

the entire ASCAP repertoire; it is therefore simply a miniblanket

license. As is true of a long-term blanket license, the fees set are in no

way dependent on the quantity or quality of the music used. See intra.

at 30-33

‘i

‘See [> ited State 3s \ AS , jp | 1) Dp prio if N lhiana Broadcasti) q

’ -~ ny ’ eo ‘ ' ¥ , =

Co.), 1971 Trade Cases © 73,491 (SDNY 1970)

See l’nited States \ 1SC.4 PP 1p} 7) n ot Shenandoah Valle /

Broadcasting, Inc.), 208 F. Supp. 896 (SDNY 1962), aff'd, 331 F. 2d 117

(CA2 1964), cert. denied, 377 U.S. 997

Under our prior cases, there would be no question

about the illegality of the blanket-only licensing policy if

ASCAP and BMI were the exclusive sources of all licenses.

A copyright, like a patent, is a statutory grant of monop-

oly privileges. The rules which prohibit a patentee from

enlarging his statutory monopoly by conditioning a li-

cense on the purchase of unpatented goods,'' or by refus-

ing to grant a license under one patent unless the licensee

also takes a license under another, are equally applicable

to copyrights.”

It is clear, however, that the mere fact that the holder

of several patents has granted a single package license

covering them all does not establish any illegality. This

point was settled by Automatic Radio Mfg. Co. v. Hazeltine

Research, Inc., 339 U. S. 827, 834, and reconfirmed in

Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S.

100, 187-138. The Court is therefore unquestionably

correct in its conclusion that ASCAP’s issuance of blanket

licenses covering its entire inventory is not, standing

alone, automatically unlawful. But both of those cases

identify an important limitation on this rule. In the

former, the Court was careful to point out that the record

did not present the question whether the package license

would have been unlawful if Hazeltine had refused to

license on any other basis. 339 U.S., at 831. And in the

'' Mercoid Corp. v. Mid-Continent Investment Co., 320 U. S. 661;

Ethyl Gasoline Corp. v. United States, 309 U. S. 436; International

Business Machines Corp. v. United States, 298 U.S. 131; United Shoe

Machinery Corp. v. United States, 258 U.S. 451.

* Indeed, the leading cases condemning the practice of ‘“block-

booking” involved copyrighted motion pictures, rather than patents.

See United States v. Paramount Picturcs, 334 U.S. 131; United States v

Loew's Inc., 371 U.S. 38.

C-30

latter case, the Court held that the package license was

illegal because of such a refusal. 395 U.S., at 140-141.

Since ASCAP offers only blanket licenses, its licensing

practices fall on the illegal side of the line drawn by the

two Hazeltine cases. But there is a significant distinction:

unlike Hazeltine, ASCAP does not have exclusive control

of the copyrights in its portfolio, and it is perfectly

possible—at least as a legal matter—for a user of music to

negotiate directly with composers and publishers for

whatever rights he may desire. The availability of a

practical alternative alters the competitive effect of a

blockbooking or blanket-licensing policy. ASCAP is

therefore quite correct in its insistence that its blanket

license cannot be categorically condemned on the author-

ity of the blockbooking and package-licensing cases.

While these cases are instructive, they do not directly

answer the question whether the ASCAP practice is

unlawful.

The answer to that question depends on an evaluation

of the effect of the practice on competition in the relevant

market. And, of course, it is well settled that a sales

practice that is permissible for a small vendor, at least

when no coercion is present, may be unreasonable when

employed by a company that dominates the market.'* We

see Tampa Electric Co. v. Nashville Coal Co., 865 U.S. 320, 334

(upholding requirements contract on the ground that “[t|here is here

neither a seller with a dominant position in the market as in Standard

Fashion |Co. v. Magrane- Houston Co., 258 U.S. 346]; nor myriad outlets

with substantial sales volume, coupled with an industry-wide practice

of relying upon exclusive contracts, as in Standard Oil | Co. v. United

States, 887 U.S. 293]; nor a plainly restrictive tying arrangement as in

International Salt | Co Vv. United States, 382 U. S. 392]"); Times-

Picayune Publishing Co. vo United States, 845 U.S 594, 610-612 (up-

holding challenged advertising practice because, while the volume of

commerce affected was not “insignificant or insubstantial,” seller

C-31

therefore must consider what the record tells us about the

competitive character of this market.

The market for music at issue here is wholly domi-

nated by ASCAP-issued blanket licenses.'' Virtually

every domestic copyrighted composition is in the reper-

toire of either ASCAP or BMI. And again, virtually

without exception, the only means that has been used to

secure authority to perform such compositions is the

blanket license.

The blanket all-or-nothing license is patently dis-

criminatory.'> The user purchases full access to ASCAP’s

entire repertoire, even though his needs could be satisfied

by a far more limited selection. The price he pays for this

access is unrelated either to the quantity or the quality of

was found not to occupy a “dominant position” in the relevant

market). While our cases make clear that a violation of the Sherman

Act requires both that the volume of commerce affected be substantial

and that the seller enjoy a dominant position, see id., at 608-609, proof

of actual compulsion has not been required, but cf. Royster Drive-In

Theatres, Inc. v. American Broadcasting- Paramount Theatres, Inc., 268

I’, 2d 246, 251 (CA2 1959), cert. denied, 361 U.S. 885; Milwaukee Towne

Corp. v. Loew's, Inc., 190 F. 2d 561 (CAT 1951), cert. denied, 342 U.S.

909. The critical question is one of the likely practicai effect of the

arrangement: whether the “court believes it probable that performance

of the contract will foreclose competition in a substantial share of the

line of commerce affected.” Tampa Electric Co. v. Nashville Coal Co.,

supra, at 327

‘As in the majority opinion, my references to ASCAP generally

encompass BMI as well.

‘See Cirace, CBS v. ASCAP: An Economic Analysis of A Political

Problem, 47 Ford. L. Rev. 277, 286 (1978) (“the all-or-nothing bargain

allows the monopolist to reap the benefits of perfect price dis-

crimination without confronting the problems posed by dealing with

different buyers on different terms’’)

> -32

the music he actually uses, or, indeed, to what he would

probably use in a competitive system. Rather, in this

unique all-or-nothing system, the price is based on a

percentage of the user’s advertising revenues,'* a measure

that reflects the customer’s ability to pay" but is totally

unrelated to factors—such as the cost, quality, or quantity

of the product—that normally affect price in a competitive

market. The ASCAP system requires users to buy more

music than they want at a price which, while not beyond

their ability to pay and perhaps not even beyond what is

“reasonable” for the access they are getting,'* may well be

far higher than what they would choose to spend for music

in a competitive system. It is a classic example of

economic discrimination.

‘For many years prior to the commencement of this action, the

BMI blanket-license fee amounted to 1.09% of net receipts from

sponsors after certain specified deductions. 400 F. Supp., at 743. The

fee for access to ASCAP’s larger repertory was set at 2.5% of net

receipts; in recent years, however, CBS has paid a flat negotiated fee,

rather than a percentage, to ASCAP. 23 Jt. App. in CA2 No. 75-7600,

pp. F1051-FE1052, E1135.

See Cirace, supra, at 288:

“This history indicates that, from its inception, ASCAP exhibited a

tendency to discriminate in price. A license fee based upon a per-

centage of gross revenue is discriminatory in that it grants the same

number of rights to different licensees for different total dollar

amounts, depending upon their ability to pay. The effectiveness of

price discrimination is significantly enhanced by the all-or-nothing

blanket license.”

“ Under the ASCAP consent decree, on receipt of an application,

ASCAP is required to “advise the applicant in writing of the fee which

it deems reasonable for the licciise requested.” If the parties are unable

to agree on the fee within 60 days of the application, the applicant may

apply to the United States District Court for the Southern District of

New York for the determination of a “reasonable fee.” United States \

ASCAP, 1950-1951 Trade Cases 962,595, p. 63,754 (SDNY 1950). The

BMI decree contains no similar provision for judicial determination of a

reasonable fee.

C-33

The record plainly establishes that there is no price

competition between separate musical compositions."

Under a blanket license, it is no more expensive for a

network to play the most popular current hit in prime

time than it is to use an unknown composition as

background music in a soap opera. Because the cost to the

user is unaffected by the amount used on any program or

on all programs, the user has no incentive to economize by,

for example, substituting what would otherwise be less

expensive songs for established favorites or by reducing

the quantity of music used on a program. The blanket

license thereby tends to encourage the use of more music,

and also of a larger share of what is really more valuable

music, than would be expected in a competitive system

characterized by separate licenses. And since revenues are

passed on to composers on a basis reflecting the character

and frequency of the use of their music,” the tendency is

to increase the rewards of the established composers at the

expense of those less well known. Perhaps the prospect is

in any event unlikely, but the blanket license does not

present a new songwriter with any opportunity to try to

break into the market by offering his product for sale at

an unusually low price. The absence of that opportunity,

‘ASCAP’s economic expert, Robert Nathan, was unequivocal on

this point:

"Q. Is there price competition under this system between separate

musical compositions?

“A. Nosir.” Tr. 3983.

See 562 F. 2d, at 136 n. 15. In determining royalties ASCAP

distinguishes between feature, theme, and background uses of music.

The 1950 amended decree requires ASCAP to distribute royalties on “a

hasis which gives primary consideration to the performance of the

compositions.” The 1960 decree provided for the additional option of

receiving royalties under a deferred plan which provides additional

compensation based on length of membership and the recognized

tatus of the individual’s works. See United States v. ASCAP, 1960

Trade Cases © 69,612, pp. 76,469-76,470 (SDNY 1960).

C-34

however unlikely it may be, is characteristic of a cartelized

rather than a competitive market.”

The current state of the market cannot be explained

on the ground that it could not operate competitively, or

that issuance of more limited—and thus less restric-

tive—licenses by ASCAP is not feasible. The District

Court’s findings disclose no reason why music- performing

rights could not be negotiated on a per-composition or

per-use basis, either with the composer or publisher di-

rectly or with an agent such as ASCAP. In fact, ASCAP

now compensates composers and publishers on precisely

those bases.” If distributions of royalties can be calculated

on a per-use and per-composition basis, it is difficult to see

why royalties could not also be collected in the same way.

Moreover, the record also shows that where ASCAP’s

blanket-license scheme does not govern, competitive mar-

kets do. A competitive market for “synch” rights exists,”

and after the use of blanket licenses in the motion picture

industry was discontinued," such a market promptly

developed in that industry.” In sum, the record demon-

strates that the market at issue here is one that could be

highly competitive, but is not competitive at all.

*! See generally 2 P. Areeda & D. Turner, Antitrust Law 280-281,

342-345 (1978); Cirace, supra n. 15, at 286-292.

2 See n. 20, supra.

* The “synch” right is the right to record a copyrighted song in

synchronization with the film or videotape, and is obtained separately

from the right to perform the music. It is the latter which is controlled

by ASCAP and BMI. See CBS, Inc. v. ASCAP, 400 F. Supp., at 743.

** See Alden- Rochelle, Inc. v. ASCAP, 80 F. Supp. 888 (SDNY 1948).

** See 400 F. Supp., at 759-763; 5 Jt. App. in CA2 No. 75-7600, pp.

775-777 (testimony of Albert Berman, managing director of the Harry

Fox Agency, Inc.). Television synch rights and movie performance and

synch rights are handled by the Fox Agency, which serves as the broker

for thousands of music publishers.

Since the record describes a market that could be

competitive and is not, and since that market is domi-

nated by two firms engaged in a single, blanket method of

dealing, it surely seems logical to conclude that trade has

been restrained unreasonably. ASCAP argues, however,

that at least as to CBS, there has been no restraint at all

since the network is free to deal directly with copyright

holders.

The District Court found that CBS had failed to

establish that it was compelled to take a blanket license

from ASCAP. While CBS introduced evidence suggesting

that a significant number of composers and publishers,

satisfied as they are with the ASCAP system, would be

“disinclined” to deal directly with the network, the court

found such evidence unpersuasive in light of CBS’s

substantial market power in the music industry and the

importance to copyright holders of network television

exposure.” Moreover, it is arguable that CBS could go

further and, along with the other television networks, use

its economic resources to exploit destructive competition

among purveyors of music by driving the price of per-

formance rights down to a far lower level. But none of

this demonstrates that ASCAP’s practices are lawful, or

that ASCAP cannot be held liable for injunctive relief at

CBS’s request.

The fact that CBS has substantial market power does

not deprive it of the right to complain when trade is

restrained. Large buyers, as well as small, are protected

by the antitrust laws. Indeed, even if the victim of a

conspiracy is himself a wrongdoer, he has not forfeited the

“See 400 F. Supp., at 767-771.

C-36

protection of the law.*’ Moreover, a conclusion that ex-

cessive competition would cause one side of the market

more harm than good may justify a legislative exemption

from the antitrust laws, but does not constitute a defense

to a violation of the Sherman Act.” Even though charac-

terizing CBS as an oligopolist may be relevant to the

question of remedy, and even though free competition

might adversely affect the income of a good many com-

posers and publishers, these considerations do not affect

the legality of ASCAP’s conduct.

More basically, ASCAP’s underlying argument that

CBS must be viewed as having acted with complete

freedom in choosing the blanket license is not supported

by the District Court’s findings. The District Court did

not find that CBS could cancel its blanket license ‘‘tomor-

row” and continue to use music in its programming and

compete with the other networks. Nor did the District

Court find that such a course was without any risk or

expense. Rather, the District Court’s finding was that

within a year, during which it would continue to pay some

millions of dollars for its annual blanket license, CBS

would be able to develop the needed machinery and enter

into the necessary contracts.” In other words, although

the barriers to direct dealing by CBS as an alternative to

paying for a blanket license are real and significant, they

are not insurmountable.

Far from establishing ASCAP’s immunity from lia-

bility, these District Court findings, in my judgment,

“See Perma Life Mufile rs, Inc. v. International Parts Corp., 392

u. & 134, 138-140: Simpson v. Union Oil Co., 377 U. S. 13, 16- ef he Kiet r-

Stewart Co. v. Joseph E. Seagram & Sons, Inc., 8340 U.S. 211, 214.

*See National Society of Professional Engineers v. United States

435 U.S. 679, 689-690.

“See 400 F. Supp., at 762-765.

C-37

confirm the illegality of its conduct. Neither CBS nor any

other user has been willing to assume the costs and risks

associated with an attempt to purchase music on a com-

petitive basis. The fact that an attempt by CBS to break

down the ASCAP monopoly might well succeed does not

preclude the conclusion that smaller and less powerful

buyers are totally foreclosed from a competitive market.”

Despite its size, CBS itself may not obtain music on a

competitive basis without incurring unprecedented costs

and risks. The fear of unpredictable consequences, coupled

with the certain and predictable costs and delays associ-

ated with a change in its method of purchasing music,

unquestionably inhibits any CBS management decision to

embark on a competitive crusade. Even if ASCAP offered

CBS a special bargain to forestall any such crusade, that

special arrangement would not cure the market-wide

restraint.

Whatever management decision CBS should or might

have made, it is perfectly clear that the question whether

competition in the market has been unduly restrained is

not one that any single company’s management is author-

ized to answer. It is often the case that an arrangement

among competitors will not serve to eliminate competition

forever, but only to delay its appearance or to increase the

costs of new entry. That may well be the state of this

market. Even without judicial intervention, the ASCAP

* For an individual user, the transaction costs involved in direct

dealing with individual copyright holders may well be prohibitively

high, at least in the absence of any broker or agency routinely handling

such requests. Moreover, the District Court found that writers and

publishers support and prefer the ASCAP system to direct dealing. Jd.,

at 767. While their apprehension at direct dealing with CBS could be

overcome, the District Court found, by CBS’s market power and the

importance of television exposure, a similar conclusion is far less likely

with respect to other users.

C-38

monopoly might eventually be broken by CBS, if the

benefits of doing so outweigh the significant costs and

risks involved in commencing direct dealing.*' But that

hardly means that the blanket-licensing policy at issue

here is lawful. An arrangement that produces market-

wide price discrimination and significant barriers to entry

unreasonably restrains trade even if the discrimination

and the barriers have only a limited life expectancy.

History suggests, however, that these restraints have an

enduring character.

The risks involved in such a venture appear to be substantial.

One significant risk, which may be traced directly to ASCAP and its

members, relates to music “in the can’’—music which has been per-

formed on shows and movies already in the network’s inventory, but

for which the network must still secure performing rights. The

networks accumulate substantial inventories of shows “in the can.”

And, as the Government has pointed out as amicus curiae:

“If they [the networks and television stations] were to discontinue the

blanket license, they then would be required to obtain performance

rights for these already-produced shows. This attempt would create an

opportunity for the copyright owners, as a condition of granting

performing rights, to attempt to obtain the entire value of the shows

‘in the ean.’ It would produce, in other words, a case of bilateral

monopoly. Because pricing is indeterminate in a bilateral monopoly,

television networks would not terminate their blanket licenses until

they had concluded an agreement with every owner of copyrighted

music ‘in the can’ to allow future performance for an identified price;

the networks then would determine whether that price was sufficiently

low that termination of the blanket license would be profitable. But the

prospect of such negotiations offers the copyrights owners an ability to

misuse their rights in a way that ensures the continuation of blanket

licensing despite a change in market conditions that may make other

forms of licensing preferable.” Brief for United States as Amicus

Curiae 24-25.

This analysis is in no sense inconsistent with the findings of the

District Court. The District Court did reject CBS’s coercion argument

as to music “in the can.” But as the Government again points out, the

District Court's findings were addressed essentially to a tie-in claim:

“the court did not consider the possibility that the copyright owners’

self-interested, non-coercive demands for compensation might never-

theless make the cost of CBS’ dropping the blanket license sufficiently

high that ASCAP and BMI could take this ‘termination penalty’ into

account In setting fees for the blanket license.” J/d., at 25 n. 23.

C-39

Antitrust policy requires that great aggregations of

economic power be closely scrutinized. That duty is

especially important when the aggregation is composed of

statutory monopoly privileges. Our cases have repeatedly

stressed the need to limit the privileges conferred by

patent and copyright strictly to the scope of the statutory

grant. The record in this case plainly discloses that the

limits have been exceeded and that ASCAP and BMI

exercise monopoly powers that far exceed the sum of the

privileges of the individual copyright holders. Indeed,

ASCAP itself argues that its blanket license constitutes a

product that is significantly different from the sum of its

component parts. I agree with that premise, but I

conclude that the aggregate is a monopolistic restraint of

trade proscribed by the Sherman Act.

APPENDIX D

INITIAL OPINION OF THE

COURT OF APPEALS

REPORTED AT 562 F.2d 130 (2d Cir. 1977)

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

COLUMBIA BROADCASTING SYSTEM, INC.,

Plaintiff-Appellant,

—against—

AMERICAN SOCIETY OF COMPOSERS,

AUTHORS AND PUBLISHERS, et al.,

Defendants- Appellees.

No. 24, Docket 75-7600

Argued October 14, 1976

Decided August 8, 1977

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

J. Barclay Collins, II, Robert M. Sondak, Kenneth M.

Kramer, Cravath, Swaine & Moore, and John D. Appel,

New York City, of counsel), for plaintiff-appellant.

Amalya L. Kearse, New York City (George A. David-

son, Pamela R. Chepiga and Hughes, Hubbard & Reed,

New York City, of counsel), for defendants-appellees,

Broadcast Music, Inc., et al.

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

Max Gitter, Richard Reimer, Paul, Weiss, Rifkind, Whar-

ton & Garrison, Bernard Korman, New York City, of

counsel), for defendants-appellees, American Society of

Composers, Authors and Publishers, et al.

Before MOORE, ANDERSON and GURFEIN, Circuit Judges.

D-2

GurFeIn, 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. BML in [sic] 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 opposed 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)

D-3

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 injunc-

tion under 416 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 musie 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 confront conditions both in copyright law and in anti-

trust law which are sui 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

for profit in non-dramatic performances.

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

“$1. 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... .” aegis

D-4

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 sued 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 vy. 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).

D-5

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 i-

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 a/ready been licensed to the motion pic-

ture producer. The specifie holding by Judge Leibell in

Alden-Rochelle, Inc. vy. 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 would 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, United States v.

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

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

Music: The \SCAP Consent Jucgment of 1950,” 19 Law & Con-

temp. Prob. 294, 320 (1954)

D-6

cause the members had transferred all their non-dramatic

performing rights to ASCAP and were barred from in

dividually assigning such rig¢**s to motion picture produce

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

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

At about this time, the Government began to renegotiat

the consent decree with ASCAP. The amended consent

decree reflected two important changes. First, ASCAP,

unlike its position under the 1941 decree, was no long

mitted to interfere with the right of any of it

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

not have to go into the ASCAP pot for later dist

on some formula basis. Second, although ASCAP

not required to issue per use licenses for broad

was required to issue per program licenses

criminate against their free selection by | :

The per program license is simply another fo

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

permit us: of any composition in the ASCAP

and both permit payment by a fixed percentag

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

the annual blanket license, the payment

for the year regardless of whether all or

work’s programs use ASCAP compositions, w!

the per program license the fee is detern

ber of programs using ASCAP compositions. H

neither permits the licensee to pay only for thos

7. The Alden-Rochelle decisior p

ing rights in motion picture theatre

8. See United States v. ASCAP, 195

762,595 at 63,753-754 (S.D.N.Y. 195

D-7

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 music 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 any 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 'imited 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. 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. dented, 377 U.S. 997, 84 S.Ct. 1917, 12 L.Ed.2d

1048 (1964).

D-8

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

‘t 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 specificalh

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 testimiony of

three distinguished economists, Franklin M. Fisher for CBS,

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

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

tiation market. Judge Lasker essentially accepted the Nathan view.

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

(footnote continued on next page)

D-9

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 music 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 music 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 for 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 gre ne.

rights to the music publishers. Under the American Guild of

Authors and Composers form contract, publishers are required to

obtain an AGAC writer’s consent for television synchronization

(footnote continued on next page)

D-10

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

761. 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 when 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 royalty 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)

D-11

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. 181, 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 776

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)

D-12

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

150, 221, 60 S.Ct. 811, 843, 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 US. 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 v. ASCAP.,

1960 CCH Trade Cases 69,612 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).

D-13

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 ease 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

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

(9th Cir. 1967), cert. denied, 389 U.S. 1045, 88 8.C't. 761, 19

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

fringement brought by several ASCAP members against a

radio broadcaster operating in the state of Washington.

The broadeaster 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).

D-14

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 Circuit, 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 acquire 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) : United

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

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

States, 288 U.S. 344, 53 S.Ct. 471, 77 L.Ed. 825 (19338) ;

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

38 8.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).

D-15

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 all 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.

D-16

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

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

Ninth Circuit 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

Neense 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 industry where

such a “market necessity’ defense would be applicable.

D-17

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 cases in

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

patents involved. Coercion is simply not an essential in-

gredient 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 Circuit in K-91 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

D-18

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 U.S. 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.

D-19

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 Fox

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: ‘‘[p]rivate parties, of course, always have the

option of seeking relief in their own behalf, notwithstanding

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

Government consent decree does not insulate ASCAP from

the 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,

moreover, in its amicus brief in K-97.

D-20

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 individua! 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 mn-

siclans in an orchestra are not competitors: the con

D-21

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.*®

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

the dismissal of the complaint no separate evidence was

taken on reme ly. 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-91 result

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

sity. Indeed, CBS concedes that market necessity would probably

justify ASCAP blanket licenses for restaurants, night clubs, skating

rinks and even radio stations

D-22

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 affect 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.

D-23

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.

Moorr, Circuit Judge (concurring) :

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-97, Inc. v. 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 888 (1968), and the

Solicitor General’s accompanying amicus brief would sup-

port this view.

29. As

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