Statement of Marybeth Peters
The Register of Copyrights
Subcommittee on Courts and Intellectual Property
Committee on the Judiciary
United States House of Representatives
105th Congress, 1st Session
July 17, 1997
Fairness in Musical Licensing Act of 1997 (H.R. 789)
Mr. Chairman, members of the Subcommittee, thank you for the opportunity to
testify today on this proposed legislation, which would have a significant impact
on the U.S. copyright system. Although I understand that this hearing will focus
on section 2(a) of H.R. 789, which would expand the “homestyle” exemption
of existing section 110(5), I will address the full scope of the bill in my
The Copyright Office has serious concerns about the substantial broadening
of the existing exemptions for the public performance of musical works that
would be accomplished by this bill, and about certain aspects of the restraints
that would be imposed on the business operations of the organizations that
license such performances on behalf of the authors, composers and other
copyright owners. Our concerns involve both domestic considerations, and the
implications for the United States in connection with its international treaty
The substantive provisions of H.R. 789 can be divided into three categories:
(1) new or expanded exemptions to the public performance right; (2) a new
limitation on which parties may be liable for infringing public performances;
and (3) regulation of the conduct of business by performing rights societies.
I will analyze each in turn from a domestic perspective, providing some
technical and historical context, and then discuss the international
Domestic Policy Considerations
(1) New or Expanded Exemptions
Section 2 of the bill would place the following new or expanded exemptions
in section 110 of the Copyright Act: (1) an expansion of the existing “homestyle”
exemption in section 110(5), dealing with communications to the public of
transmissions embodying a performance or display of a work; (2) an expansion of
the existing exemption in section 110(6), dealing with performances at annual
agricultural fairs and similar events; (3) an expansion of the existing
exemption in section 110(7), dealing with performances in record stores to
promote record sales; and (4) a new exemption for performances at children's
The right of public performance is a core right for the owners of copyright
in musical works. Public performance is one of the major ways in which these
works are exploited, and the largest source of income for their owners. Most
of the exceptions to this right are collected in section 110 of the Copyright
Act. These exceptions are detailed and complex, referring to specific
categories of works and narrowly-delineated types of uses. Their scope was
thoroughly debated during the 20-year consideration of the general copyright
revision completed in 1976. They represent a hard-fought, careful balancing of
interests between right holders and users.
The existing exceptions share certain common characteristics. Generally,
they either accommodate a particular public interest type of use, or are
otherwise calibrated to cause minimal economic impact on the copyright owner.
Thus, several relate to specific non-profit, educational or charitable uses;
others narrowly limit the circumstances of the use to ensure that it does not
substitute for meaningful commercial exploitation.
The changes proposed in section 2 of H.R. 789 would fundamentally alter the
nature of section 110. It would no longer be limited to non-profit and minor
small business exceptions, but would allow businesses of any size to make
significant commercial uses of musical works without permission or payment.
This represents a major shift in the balance struck in 1976.
· Expansion of “homestyle exemption”
Section 2(a) of the bill, entitled “Business Exemption,” would
amend section 110(5) to expand the existing “homestyle” exemption.
This exemption allows transmissions embodying a performance or display of a work
to be communicated to the public without the copyright owner's consent in
certain circumstances. Under current law, there are three important
limitations on such communication: (1) it must be done through a single
receiving apparatus of a kind commonly used in private homes (hence the term “homestyle” );
(2) there must be no direct charge for seeing or hearing the transmission; and
(3) the transmission must not be further transmitted to the public.
As explained in the legislative history to the 1976 Act, the purpose of
section 110(5) is to exempt from copyright liability anyone who merely turns on,
in a public place, an ordinary radio or television receiving apparatus of a kind
commonly sold to members of the public for private use . . . [T]he clause would
exempt small commercial establishments whose proprietors merely bring onto their
premises standard radio or television equipment and turn it on for their
customers' enjoyment, but it would impose liability where the proprietor has a
commercial ?sound system' installed or converts a standard home receiving
apparatus (by augmenting it with sophisticated or extensive amplification
equipment) into the equivalent of a commercial sound system.
H. R. Rep. No. 1476, 94th Cong., 2d Sess. 87 (1976). Congress intended to
cover uses that were “remote and minimal,” where “in the vast
majority of cases no royalties are collected today.” Id. at 86.
The proposed amendment would significantly broaden this exemption by
removing two of its limitations: the use of a single receiving apparatus of a
kind commonly used in private homes, and the ban on retransmissions. It would
exempt any communication by any electronic device of a transmission embodying a
performance or display of a nondramatic musical work by the reception of a
broadcast, cable, satellite or other transmission, as long as no admission fee
is charged to see or hear the transmission and the initial transmission itself
was properly licensed. For example, a national restaurant chain could install a
sophisticated professional loudspeaker system in each of its restaurants, and
enhance their ambiance by providing a musical background for diners, transmitted
from a radio station without any compensation to the copyright owners. The
proposed exemption might also permit free use of music that is communicated not
only by radio or television, but through new technologies such as digital
Unlike the other section 110 exemptions, this exemption would not further
nonprofit public interest goals, or be limited in its economic impact. It would
allow business entities of any size to use copyrighted music for free in order
to entertain their customers, and thereby stimulate sales of their own goods or
services--a financial benefit that does not depend on the existence of an
admission charge. It could also lead to the result that Congress sought to
avoid in 1976, supplanting existing background music services and other
licensing arrangements that provide revenue to copyright owners today.
On the other side, the need of users for such a broad exemption has not been
established. The financial impact of the present system on business users seems
limited. It is our understanding that the amounts involved are small for each
individual establishment--somewhere in the range of a dollar or two a day for
each of the three licensing organizations. In the aggregate, however, these
licensing fees represent a significant source of income for copyright owners.
For these reasons, the Copyright Office opposes enactment of section 2(a) of
H.R. 789 in its present form.
· Expansion of agricultural events exemption
Section 2(b) of the bill, entitled “Agricultural Events,” would
amend existing section 110(6), which exempts government and nonprofit sponsors
of annual agricultural or horticultural fairs or exhibitions from liability for
performances of nondramatic musical works, including under doctrines of
vicarious liability or related infringement for performances by concessionaires,
business establishments, and other persons at the event. The amendment would
broaden the coverage of the exemption from agricultural or horticultural fairs
or exhibitions taking place once a year to any “agricultural or
horticultural fair, convention, meeting, event, or exhibition.” This
language is ambiguous; it is unclear whether the term “agricultural or
horticultural” modifies the terms “convention, meeting, event, or
exhibition.” In addition, the amendment would further exempt the event
sponsors from liability under the doctrine of contributory infringement a
doctrine that conditions liability on both knowledge of and participation in an
act of infringement.
Like the section 110(5) exemption, the current section 110(6) is
circumscribed to conduct that has minimal economic impact on the copyright
owner. Removal of the “annual” limitation, and the inclusion of
conventions, meetings and all types of events in the exemption, would lead to a
much greater impact. Business conventions or other meetings involving thousands
of paying participants might be entitled to perform music without authorization
or payment. The Copyright Office cannot support such an expansion.
· Expansion of promotional exemption
Section 2(c) of the bill, entitled “Exemption Relating to Promotion,”
would expand existing section 110(7), which permits unlicensed performances of
nondramatic musical works by stores, when done solely to promote sales of copies
or records embodying those works. The amendment would extend eligibility for
this exemption beyond stores selling music or records, to cover any
establishment that performs the works to promote sales of audio and video
equipment. It would also remove the restrictions that require promotion to be
the sole purpose of the performance, and that require the performance to take
place “within the immediate area where the sale is occurring.”
Although the uses permitted today under section 110(7) are commercial in
nature, they relate directly to the promotion of sales of copies or recordings
of the copyrighted works being used. Consequently, the diminution of licensing
revenue to copyright owners can be expected to be offset by increased sales of
copies of their works. Exempting performances that promote sales of unrelated
consumer electronic products such as televisions and stereos cannot be justified
in the same way.
Moreover, the spatial limitation in the existing exemption ensures a close
tie between the performance and the product being promoted. The result of its
removal, combined with the deletion of the word “sole” and the
allowance of purposes beyond the promotional, is that music could be used
generally to entertain and attract customers by any type of business, as long as
the business places on sale even a single device used in the performance.
Again, the effect of the proposed expansion would be to grant all business
entities the right to use copyrighted music for free anywhere on their premises,
in order to enhance their own sales. The Copyright Office therefore cannot
support this provision.
· New exemption for children's camps
Section 2(d) of the bill, entitled “Performances at Children's Camps,”
would create a new exemption for performances of nondramatic musical works at
organized children's camps if the children sing the work, play games or dance to
it, or if the performance is instructional. It appears to be the outgrowth of
media coverage last year of ASCAP's communications with Girl Scout camps
regarding their performance of musical works.
The uses that would be permitted by section 2(d) seem more closely related
to public interest uses than the business exemptions in sections 2(a) and (c).
But many summer camps are operated by for-profit businesses. Yet, unlike
existing exemptions in section 110 for similar purposes, the proposed exemption
is not subject to any limitation on the type of entity that is eligible. To the
extent that a new exemption is warranted, it would be more appropriate, and more
consistent with the general approach of section 110, to limit it to nonprofit
entities, and to performances made “without any purpose of direct or
indirect commercial advantage,” as required by sections 110(4), (8), and
It is not clear, however, why even a narrower version of this exemption is
needed. Existing paragraph (4) of section 110 already exempts most nonprofit
performances that take place at children's camps. It allows unlicensed live
performances of nondramatic musical works, when they are done without any
purpose of direct or indirect commercial advantage and without payment of any
compensation for the performance to the performers, promoters, or organizers, if
two conditions are met: (1) there is no direct or indirect admission charge;
and (2) any proceeds above and beyond costs are used exclusively for
educational, religious or charitable purposes and not for private financial gain
(unless the copyright owner has served a specific notice of objection in a
prescribed form and manner).
(2) Limitations on Liability
The bill also contains a carve-out from existing doctrines of third-party
liability for various parties who own or manage the premises on which infringing
performances take place. Section 7 would eliminate the possibility of imposing
liability for performances on landlords, convention organizers and sponsors,
facility owners, and similar parties, under theories of vicarious liability or
contributory infringement based on the party's right or ability to control, or
actual control over, the premises or their use. To qualify for the exemption,
the contract granting the right to use the space must prohibit infringing public
performances, and the party relying on the exemption must not exercise control
over the selection of works performed.
This proposal would effect a major change to U.S. copyright law, with
implications that go beyond the music licensing issues addressed in the bill.
It represents a significant derogation from the well-established doctrines of
vicarious liability and contributory infringement, applicable to all types of
uses of all categories of works.
Under the doctrine of vicarious liability, a party that has the right and
ability to control infringing activity, and receives a direct financial benefit
from the infringement, is held liable for the infringement. Shapiro, Bernstein
& Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963). The doctrine of
contributory infringement imposes liability on parties that have knowledge of,
and induce, cause, or materially contribute to an infringement. Gershwin
Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d
Cir. 1971). These are circumstances where it has long been considered just and
appropriate to impose liability for the infringing acts of others. See Sony
Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435 (1984); 3 Melville B.
Nimmer and David Nimmer, THE LAW OF COPYRIGHT § 12.04[A] (1996); H.R. Rep.
No. 1476, 94th Cong., 2d Sess. 61 (1976) (noting statutory recognition of
doctrine of contributory infringement in 1976 Copyright Act).
The bill would give immunity from these doctrines to one particular type of
business activity for one particular type of use of one particular type of work.
No justification has been advanced for this special treatment, and immunity
could be provided for knowing, profit-making conduct by a commercial entity that
may be the only financially responsible party involved in an act of
(3) Regulation of Business Operations of Performing Rights Societies
Other provisions in H.R. 789 regulate the manner in which performing rights
societies conduct their business. Section 3 of the bill would require binding
arbitration of rate disputes involving performing rights societies, such as
ASCAP, BMI and SESAC, at the request of the music user, and would limit the
amount of damages for past infringement in such a proceeding. Section 4 would
require these societies to offer per programming period licenses for radio
broadcasters as an alternative to blanket licenses, with limitations on the
license fees that could be charged. Section 5 would mandate public
dissemination by the societies of information about the works in their
respective repertoires both on-line and in hard copy form, updated every three
months, as well as documentation regarding their licenses with their members.
It would also restrict their ability to participate in an infringement action or
charge a fee for a per programming period license if these requirements are not
The Copyright Office has concerns about the impact of a number of these
provisions on the practical ability of copyright owners to enforce their rights
and obtain a fair return for the use of their works. These concerns arise in
part from the nature and history of collective licensing in this country.
As a practical matter, performing rights must be exercised collectively.
Musical works are performed all around the country, in large and small
establishments of varying types, often without advance planning or advertising.
Individual composers and music publishers cannot monitor all uses, negotiate
with all users and collect royalties. The only feasible way for them to enforce
their rights is to rely on performing rights societies like ASCAP, BMI and
SESAC. The mechanism of collective licensing for the public performance of
musical works is widely utilized around the world.
Collective administration of rights has been successful in large part
because it minimizes transaction costs for both copyright owners and users. It
allows copyright owners to enforce their rights and profit from their works
without the prohibitive expense of finding and negotiating with multiple users;
it allows users to lawfully perform musical works in public without the
difficulty of obtaining permissions from multiple copyright owners.
The performing rights societies are responsible for developing a workable
mechanism for licensing multiple and far-flung performances of numerous short
works, including a simple and generally applicable fee structure and a reliable
basis for the distribution of royalties. In establishing a fee structure, they
negotiate collectively with industry associations of user groups. Businesses
like restaurants or nightclubs typically utilize a “blanket license,”
setting a single fee for unlimited performances of all works in the society's
repertoire during a certain period of time (usually a year). The result is a
reasonable approximation of the value of all of the performances as a group.
There has been a long history of challenges to both ASCAP and BMI under the
antitrust laws, and antitrust restraints have shaped the operations of these
organizations. Today, both ASCAP and BMI operate under consent decrees. The
restraints in the decrees include a prohibition against licenses of more than
five years duration, and a requirement that a list of repertoire be maintained
and available for inspection. Since 1950, music users have been able to seek
determination of a reasonable license fee for ASCAP works in the federal court
for the Southern District of New York; in November 1994, BMI's license fees were
also placed under that court's jurisdiction. Thus, substantial safeguards
already exist against abusive practices or unreasonable charges.
Under H.R. 789, dissatisfied users could instead seek to resolve their
differences over rates through arbitrators who are instructed to determine “fair
and reasonable fees.” The resulting multiplicity of proceedings could
cause great expense and lead to widely divergent rulings. Under the consent
decrees, in contrast, similarly situated parties must be treated the same, with
all determinations made by the single rate court. This court has expertise and
provides continuity and consistency in its rulings, thereby promoting
In addition, H.R. 789 would sharply limit the amount of damages that could
be recovered by a music copyright owner for past infringement. In a (mandatory)
arbitration proceeding prior to court action, section 3 of the bill limits
potential damages to the amount that a license would have cost for the
infringing performance. In a “court-annexed” arbitration, the amount
cannot exceed two times the ordinary blanket license fee for the years in which
the performances occurred.
Under current law, copyright owners are entitled to recover, in lieu of
actual damages, statutory damages between $500 and $20,000, with a potential
rise to $100,000 in the case of willful infringement. Limiting the possible
monetary recovery for past infringement to the license amount removes any
incentive to obtain a license in advance. In order to avoid such perverse
incentives, courts have held that damages should be set at an amount high enough
to create a meaningful financial difference between compliance with the law and
infringement. See, e.g., International Korwin Corp. v. Kowalczyk, 855 F.2d 375,
383 (7th Cir. 1988); Iowa State Univ. Research Foundation v. American
Broadcasting Cos., 475 F. Supp. 78 (S.D.N.Y. 1979), aff'd, 621 F.2d 57 (2d Cir.
With respect to radio broadcasts, under current law and practices
broadcasters can obtain three different types of licenses for the performance of
musical works: (1) direct licenses from the copyright owner; (2) per program
licenses from a performing rights society; or (3) blanket licenses from a
performing rights society. The bill would mandate that copyright owners make
available, at the broadcaster's option, a per programming period license with
detailed constraints on the price that could be charged. In the view of the
Copyright Office, as a matter of general policy, the government should not
interfere in the marketplace and place limitations on the contractual freedom of
copyright owners and users to negotiate terms and conditions for the use of
copyrighted works. Today, such governmental constraints have been imposed only
in the context of antitrust law, through the operation of the consent decree
under the jurisdiction of the federal court in New York. We also question the
limitations on fee-setting, which, when combined with the mandatory nature of
the per programming period license, appear to have the potential to greatly
reduce the income generated for copyright owners under the current system, as
well as the economic feasibility of a system that may require monitoring the
broadcasts of every radio station in America.
Finally, we have concerns about section 5's restrictions on the
participation by a performing rights society in an infringement suit or the
charging of a per programming period license fee. The result might be to
penalize a blameless composer for an error or omission by the society, and make
it impossible as a practical matter to enforce his or her rights.
(1) New or Expanded Exemptions
Several provisions of this bill also raise concerns from the perspective of
the obligations of the United States under international treaties.
The Copyright Office believes that several of the expanded exemptions, if
passed in their current form, would lead to claims by other countries that the
United States was in violation of its obligations under the Berne Convention for
the Protection of Literary and Artistic Works, incorporated into the Agreement
on Trade-Related Aspects of Intellectual Property Rights (” TRIPs” ) of
the Uruguay Round of GATT. Berne requires member states to provide to authors
of musical works exclusive rights of public performance, communication to the
public, and broadcasting, including “the public communication by
loudspeaker or any analogous instrument transmitting, by signs, sounds or
images, the broadcast of the work.” Berne Articles 11 and 11bis. In
addition, TRIPs Article 13 requires World Trade Organization members to “confine
limitations or exceptions to rights to certain special cases which do not
conflict with a normal exploitation of the work and do not unreasonably
prejudice the legitimate interests of the right holder.”
As to the proposed expansion of the homestyle exemption, we see significant
problems. An exception this broad appears to be outside the scope of the
permissible “small exceptions” to the Berne rights of public
performance and communication. Allowing virtually every business to play music
to its customers through loudspeakers or audiovisual devices would invite a
difficult case against the United States for violating our TRIPs obligations.
Similar arguments could be made about the other exceptions to the public
performance right in the form proposed in H.R. 789, particularly the promotional
use exemption and the other exemptions not limited to non-commercial uses.
These concerns as to the international implications are not purely
theoretical. Last month, after receiving a complaint from the Irish Music
Rights Organization (” IMRO” ), the European Commission opened an
investigation of U.S. licensing practices for European music as they relate to
the exemption in existing section 110(5). The complaint alleges that the United
States is currently in breach of its obligations under the Berne Convention and
TRIPs Agreement, and asserts that last year's legislative proposals to broaden
the exemption, if enacted, would further damage the economic interests of
copyright owners. During the past year, in connection with a review of the
copyright laws of all developed countries in the TRIPs Council of the World
Trade Organization, several countries questioned the United States as to the
permissibility and status of those bills.
The Copyright Office nevertheless believes that a reasonable exemption of
narrower scope could be crafted to clarify permissible conduct by small
businesses that would clearly comply with the standards of Berne and TRIPs. We
would be pleased to assist in formulating the criteria for such an exemption, as
was proposed in the 104th Congress in S. 1619, the Music Licensing Reform Act of
(2) Regulation of Business Operations of Performing Rights Societies
Three other provisions of H.R. 789 may also raise international problems:
(1) the provision in section 3 that provides for mandatory binding arbitration
to resolve disputes between performing rights societies and users relating to
fees for both past and future performances; (2) the provision in section 3 that
limits the damages available to copyright owners in a mandatory arbitration
proceeding; and (3) the provision in section 5 that bars infringement actions
and fee collection by performing rights societies for the public performance of
works that have not been identified and documented as required by that section.
The Copyright Office is concerned that these provisions could invite claims
by our trading partners that the United States is violating its obligations
under the TRIPs Agreement to “make available to right holders civil judicial
procedures concerning the enforcement” of copyrights, and to provide authority
to judicial authorities to order an infringer to pay “damages adequate
to compensate for the injury the right holder has suffered.” TRIPs Arts.
42 and 45. (The term “right holder” is defined in the TRIPs Agreement,
fn. 11, to include associations having legal standing to assert rights.) Similarly,
the requirement that works be identified and documented as a precondition to
suit or fee collection by performing rights societies could subject the United
States to claims that it is violating the Berne Convention's prohibition of
formalities imposed on the enjoyment and exercise of rights. Berne Art. 5(2).
In sum, the Copyright Office has significant concerns about
a number of the provisions of H.R. 789 from a policy and international perspective.
We do believe, however, that acceptable compromise solutions are possible in
at least some of these areas. These would include the scope of the homestyle
exemption in paragraph 110(5), and aspects of the administration of the collective
licensing system. We would be happy to work with Congress and the affected parties
to assist in finding such solutions.