Columbia Broadcasting System, Inc. v. American Soc. of Composers, Authors and Publishers

• Decision Date: 08 August 1977
• Docket Number: D,No. 24,24
• Citation: 562 F.2d 130
• Parties: , 1977-2 Trade Cases 61,577, 1978-81 Copr.L.Dec. 25,001, 2 Media L. Rep. 2329 COLUMBIA BROADCASTING SYSTEM, INC., Plaintiff-Appellant, v. AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, et al., Defendants-Appellees. ocket 75-7600.
• Court: U.S. Court of Appeals — Second Circuit

Page 130

562 F.2d 130

195 U.S.P.Q. 209, 1977-2 Trade Cases 61,577,

1978-81 Copr.L.Dec. 25,001, 2 Media L. Rep. 2329

COLUMBIA BROADCASTING SYSTEM, INC., Plaintiff-Appellant, v. AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, et

al., Defendants-Appellees.

No. 24, Docket 75-7600.

United States Court of Appeals,

Second Circuit.

Argued Oct. 14, 1976.

Decided Aug. 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. Davidson, 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, Wharton & 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.

GURFEIN, Circuit Judge:

The subject-matter of this appeal has been painstakingly 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 national 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 Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc. ("BMI"), and their members and affiliates. ¹ These members and affiliates are writers and publishers of musical compositions. ² ASCAP and BMI license the non-dramatic performance rights in their compositions. 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. ⁴ CBS sought an injunction under § 16 of the Clayton Act, 15 U.S.C. § 26, directing ASCAP and BMI to offer CBS performing rights licenses on terms which reflect the actual use of music by CBS, or, alternatively, enjoining them from offering blanket licenses to any television network. CBS also sought a declaration of copyright misuse under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. The District Court, after a trial without a jury on liability alone, dismissed the complaint, and CBS appeals.

In dealing with performing rights in the music industry we confront conditions both in copyright law and in antitrust law which are sui generis. Analogy may be sought in each field, but the practical complexities of licensing musical 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 clearance by individual license. This infringement aspect, unknown elsewhere, except to some extent in the field of patents, makes the music industry sui generis.

I

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. ⁵ However, after two weeks of trial, the Government received a continuance and the case remained dormant thereafter.

In 1941 the Government sued ASCAP and BMI as unlawful 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 complaint also charged that arbitrary prices were being obtained for the blanket licenses by the illegal pooling of copyrights. The Government sought an order enjoining, inter 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 individual licensing by its members. But the latter provision was itself illusory, because if the member licensed performing 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. ⁶

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 required at that time to take an ASCAP blanket performance license in order to exhibit motion pictures, the synchronized music of which had already been licensed to the motion picture producer. The specific holding by Judge Leibell in Alden-Rochelle, Inc. v. ASCAP, 80 F.Supp. 888 (S.D.N.Y.1948), was that it was unlawful for ASCAP to require the motion picture producer to contract with distributors that the film 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 because the members had transferred all their non-dramatic performing rights to ASCAP and were barred from individually assigning such rights to motion picture producers. 80 F.Supp. at 894. See also M. Witmark & Sons v. Jensen, 80 F.Supp. 843, 849 (D.Minn.1948). ⁷

At about this time, the Government began to renegotiate the consent decree with ASCAP. The amended consent decree reflected two important changes. First, ASCAP, unlike its position under the 1941 decree, was no longer permitted to interfere with the right of any of its members to issue a direct license to a user. The royalty so obtained did not have to go into the ASCAP pot for later distribution on some formula basis. Second, although ASCAP was still not required to issue per use licenses for broadcasters, it was required to issue per program licenses and not to discriminate against their free selection by licensees. ⁸

The per program license is simply another form of blanket license. Both it and the "annual" blanket license permit use of any composition in the ASCAP inventory, and both permit payment by a fixed percentage of advertising revenues or a "flat" fee. The difference is that under the annual blanket license, the payment remains the same for the year regardless of whether all or none of the network's programs use ASCAP compositions, while under the per program license the fee is determined by the number of programs using ASCAP compositions. However, neither permits the licensee to pay only for those compositions which it actually uses, and the per program license should not be confused with a per use license. ⁹

In strengthening the per program alternative, the amended decree prohibits ASCAP from requiring or influencing 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 differentials. 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 theoretically 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 without 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. ¹⁰ In the meantime, NBC and ABC, while they may have other grievances, have not joined in this attack on blanket licensing to the networks. ¹¹

II

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 copyright owners saved the scheme from being coercive and, hence, illegal. He found that the right of CBS to negotiate with individual copyright owners was not impractical, even if the blanket licensing system were not enjoined, but rather that the evidence indicated that if CBS chose to do so, it could obtain the performing rights it needed for use in a direct negotiation market without having to take a blanket license from ASCAP. ¹² On that basis, as well as on his conclusion that there was no unlawful 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 recognize that not all network needs for music would encounter the same difficulty in procurement. Thus, theme or background music is often original music created by a composer on a salary basis for a...