Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. – Oral Argument – January 15, 1979

Media for Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.

Audio Transcription for Opinion Announcement – April 17, 1979 in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.

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Warren E. Burger:

We will hear arguments first this morning in Broadcast Music, Incorporated against Columbia Broadcasting and the consolidated case.

Topkis, you may proceed whenever you are ready.

Jay H. Topkis:

Mr. Chief Justice may it please the Court.

I appear before the Court representing The American Society of Composers, Authors and Publishers and various of its writer and publisher defendants who were sued by CBS in the southern district of New York some eight years ago.

With me are Miss Amalya Kearse, who will be speaking for Broadcast Music, Incorporated and its various affiliated defendants and the honorable Frank Easterbrook, Deputy Solicitor General, who will present the government’s views.

Miss Kearse, Mr. Easterbrook and I each have 15 minutes allotted to us.

And from my part, I propose to endeavor to present my initial presentation in about ten minutes reserving some five for rebuttal if time permits.

Now as the Court knows, this case is here pursuant to the grant of writ of a certiorari to the Second Circuit.

CBS having sued ASCAP and its various member defendants in BMI and its various affiliated defendants under the antitrust laws in late 1969.

The issue was quite simple then and it remains quite simple today.

CBS claim that its television network needed to broadcast a good deal of copyrighted music and but it could not obtain the licenses for those copyrights in direct negotiations with the copyright proprietors.

Therefore said CBS in its complaint it was compelled to take a blanket license from ASCAP and also from BMI.

A blanket license as I think the Court is aware is one under which the user, the licensee has the right to use any or all of the compositions owned by all members of ASCAP and we have over 22,000 today and all of the more than 30 affiliated foreign societies around the world on whose behalf we license copyrights as often whenever with whatever frequency the user wishes and the user pays just one stipulated fee.

For a television network like CBS I may say that fee has been running well under 1% of the gross receipts from sponsors with the network experiences.

The compulsion of which it claimed –

Potter Stewart:

It is not percentage of gross receipts or anything like that, it is a fixed dollar amount.

Jay H. Topkis:

No Your Honor, in the licenses which we used as of 1969, it was a percentage, we thereafter with NBC and ABC went to stipulated dollar amounts.

With CBS, we have not had a license since 69.

Potter Stewart:

How much money?

Jay H. Topkis:

NBC has something over $4 million a year, ABC something less than that ABC since come on rather strong but they got us when they were weak.

Warren E. Burger:

The dollar figure for CBS, did you tell us that?

Jay H. Topkis:

The CBS Your Honor had settled with us in 1969 for five years as I recall it leading up to 69 and the average for those, it was one lump sum, sums were allocated to each of the years but the parties agree that, that would not be referred to in any Court proceedings so I prefer not to say that but the average was something over $4 million a year for CBS also.

Now, the compulsion of which it complained said CBS violated the antitrust laws and all the usual ways we were accused of everything, block-booking, tying, price fixing, monopolization section 1, section 2, and the compulsions sprangs at CBS from two sources.

First, CBS complained that although it had never approached so much as one member of ASCAP seeking a direct license, CBS was sure that ASCAP’s members if CBS approached them would be disinclined to deal directly with CBS.

They would insist said CBS on dealing through ASCAP.

And second said CBS, there was no machinery by which CBS could obtain direct licenses for the compositions in the ASCAP repertory.

These were the central issues tried out as matters of fact before the District Court for eight solid weeks and in what the Second Circuit called a painstaking appraisal and analysis of the facts, Judge Lasker, the District Judge reviewed all of the evidence carefully and held against CBS as a matter of fact on every point.

He said that CBS had not established that ASCAP’s members would be disinclined to deal with CBS approach them, he said to the contrary.

The evidence was that if CBS asked them, they would line-up at CBS’s door, anxious to deal, because after all what is their business, their business is selling their music and getting it exposed on national television for the benefit of the record sales and sheet music sales, which are promoted of course by network television exposure.

On the machinery issue, Judge Lasker said all CBS had to do was ask the machinery already existed or would spring into existence quickly if CBS only indicated its interest and so finding the District Court dismissed all of CBS’s claims.

Jay H. Topkis:

I should note a most unusual aspect of this trial and I think it deserves emphasis.

CBS was not claiming the status of suffering victim, it did not claim that it had attempted to obtain direct licenses from ASCAP’s members or for that matter from BMI’s members and then refused nor had it found that the machinery for direct licensing would not work, rather CBS’s entire case was the product of speculation of conjecture.

CBS said that it —

John Paul Stevens:

Mr. Topkis, you answered earlier about the other two networks, apparently they have long-term licenses of four or five years.

Jay H. Topkis:

Yes although actually I think Your Honor, their licenses have now expired and they are proceeding on interim arrangements.

John Paul Stevens:

Does the record tell us how long the license of CBS was that expired in 69?

Jay H. Topkis:

We negotiated a deal with CBS retroactive through December 31, 69, retroactive to I believe 1962 Your Honor.

Typically, network licenses have been for five years.

John Paul Stevens:

You say take the situation in 1966 or so when they mind of started negotiating independently, were they been under a license?

Jay H. Topkis:

Yes.

John Paul Stevens:

Expiring when?

Jay H. Topkis:

Well, there was an interim arrangement Your Honor because the history of dealings between ASCAP and its television licensees has been studded by litigation but there was an interim arrangement under the amended final ASCAP amended final judgment.

As Your Honor is perhaps —

John Paul Stevens:

When would the license that was in effect in 1966 or 67 expire?

Jay H. Topkis:

It had no expiration date Your Honor.

CBS had applied to the Southern District Court, Judge Ryan for the setting of reasonable fee for A license and under the ASCAP amended final judgment whenever the Court gets around the setting that fee, it will be retroactive to the time when the application was originally filed.

John Paul Stevens:

But were they obligated with the fee uncertain, were they obligated to comply with the blanket license for the next two or three years, 66 or 67?

Jay H. Topkis:

No, they have the right to drop it whenever they wanted to.

John Paul Stevens:

Just term it at will?

Jay H. Topkis:

Yes for our practical purposes.

John Paul Stevens:

I see.

Jay H. Topkis:

Retroactively, the court would still have the power to set fees but not prospectively.

John Paul Stevens:

What I am concerned with is their argument, it does not make much sense to go out and get separate licenses when you are already obligated — you already have the right to all the music under the blanket license and then the effect would be paying twice for the same music and I am just wondering were they obligated to pay under a blanket license during the period when you suggest they should have been negotiating?

Jay H. Topkis:

No Your Honor, they could have cancelled and gone out into the market, they could.

What the District Court suggested it would have been trued for them to do would be to announce.

Let us say six months or a year in advance, they would be cancelling their license and then setup their direct licensing arrangements so that on a specific day they could shift over without the slightest penalty.

There would have been no problem there at all.

John Paul Stevens:

Is there anything in the arrangements between ASCAP and its members which would preclude ASCAP from licensing a portion of its portfolio?

Jay H. Topkis:

ASCAP undertakes the license all of the compositions of all of its members.

John Paul Stevens:

No, that is not my question.

John Paul Stevens:

The question is, is there anything that would prevent ASCAP if it is so decided to say just license one kind of music separately from the entire portfolio?

Jay H. Topkis:

Well, our agreement with our members provides that we will license all of the members, all of each members copyrights, now whether we could say to a member, we have decided only to license your music in most time or your music in —

John Paul Stevens:

Now let us start my question.

Say you have 100 members in four different categories, just assume, one is classical music and other is popular and the other is vault.

Jay H. Topkis:

Right.

John Paul Stevens:

Is there anything that would prevent ASCAP if it thought it would be advisable to license a package just containing vaults so to say?

Jay H. Topkis:

I do not know just how the amended final judgment would be read on that subject where it deals with the licensing of specified works but by category, that is I should think there would be no written bar, I can say it is never been done and I think the ASCAP members would regarded as a breach of their understanding with ASCAP.

Irving Berlin has joined ASCAP to have all of his works licensed, not to have his serious composition —

John Paul Stevens:

Say all of Irving Berlin’s go in the same category, could you license a Irving Berlin and ten other composers as a separate smaller package without breaching an agreement with any of your members or is there an agreement among the members that you must license everything as a blanket, that is it?

Jay H. Topkis:

The agreement provides that ASCAP will license the members’ entire repertory.

Now I can not really —

John Paul Stevens:

You studiously avoid answering the question.

Jay H. Topkis:

Not deliberately I assure Your Honor, but it is not a question that has ever been raised in ASCAP’s history and all I can say is that I think it would startle ASCAP’s members to be told that some of their works were being licensed and not others.

John Paul Stevens:

But what you are telling us is that the CBS if it go to separate publishers and say we want a license your portfolio of music, I am asking you if they could say, go to ASCAP and say we would like to license just the music published by X?

Jay H. Topkis:

As a matter of contractual right, I think the issue is in doubt Your Honor; that is all I can say.

I think the expectation of ASCAP’s members is that all of their compositions will be licensed whenever ASCAP grants a license.

Thurgood Marshall:

ASCAP does not promote at all, do they?

Jay H. Topkis:

It does not promote in this, well, to a slight degree Your Honor, not significantly.

We do make contributions to country music festivals and we do may —

Thurgood Marshall:

I mean you do not say that we will take four records of selling to you, ASCAP can not do that?

Jay H. Topkis:

No, we are after all, we speak for all of our members, not perhaps Justice Stevens goes to your question.

We do not push the work of any member nor the type music of any member, nor country music as opposed to rock and roll or sole.

That would be entirely out of keeping with ASCAP style of operation.

We exist for the benefit of all of our members and represent them all simultaneously.

Now —

Warren E. Burger:

You are cutting into your rebuttal time.

Jay H. Topkis:

I am indeed Your Honor and I will close very quickly with just this reminder if I may.

Of the options that are opened to CBS or any other television network, they are seems to me of extraordinary range and extraordinary benefit.

First, CBS has the right the District Court found as well as the ability to deal individually and get all the music it needs.

Second, if CBS wants to save the transactional costs and do without the bother and the trouble of dealing with individual members of ASCAP, it has the right to go to ASCAP and it can take its pick between a program license under which it pays only for each program that it broadcasts containing ASCAP music or a blanket license where its rights are absolutely unlimited.

Jay H. Topkis:

And its options do not stop there because it has the right under the ASCAP amended final judgment in the Southern district of New York to have the court supervise negotiations between ASCAP and CBS so that if ASCAP attempts to obtain an unreasonable fee, the court is standing by to guarantee that there will be a reasonable fee.

This I think make CBS an economic entity having advantages that are just about unparalleled in our society.

I cannot think of any other buyer who has the option of dealing individually with his suppliers or if calling upon them indeed compelling them by virtue of the amended final judgment to ban together and sell him all of their products at a court supervised price.

I do not know any other business that has that kind of advantage, that kind of benefit.

And with that, I will stop, thank you very much.

Warren E. Burger:

Miss Kearse?

Amalya L. Kearse:

Mr. Chief Justice, may it please the Court.

I represent Broadcast Music, Inc. which we refer to commonly as BMI.

We are here we believe on a simple question.

The question as decided by the Second Circuit is whether or not the offering of blanket licenses by BMI and ASCAP constitutes a per se violation of the antitrust laws.

This question was presented to the Second Circuit by CBS as a question of law.

CBS did not attack the findings of fact of the District Court, CBS urged the Court of Appeals not to make a rule of reason inquiry, CBS simply urged the Court of Appeals to find that as a matter of law, the offering of blanket licenses was per se illegal.

The Court of Appeals did find that the offering of blanket licenses is per se illegal.

The court did this despite the fact that it recognized that the offering of this kind of license is not a naked restraint, is not generally unlawful, is something that is required by some users, is something that is deemed very convenient by other users.

And as a result of the recognition of the values and the advantages of the availability of blanket licensing, the Court of Appeals despite the fact that it said blanket licensing is per se illegal, decided that the offering of blanket licenses should not be enjoined.

I think the reason the Court of Appeals fell into the error of finding that blanket licensing is per se illegal is apparent from one particular passage in its opinion in which it says the availability of blanket licensing gives the copyright owner the right to choose the way in which his work will be licensed.

I say that is error because there is no support in the record for that at all.

As Mr. Topkis has indicated, the record in this case is a bit unusual because we have CBS pressing its claim not on the basis of anything that has happened to CBS because CBS never attempted to get direct licenses from copyright owners.

The questioning a trial, the questioning on depositions was largely hypothetical; would you grant a direct license to CBS if it asked, what would happen CBS asked if we tried to go the direct licensing route?

There was a fair amount of speculation from CBS’s witnesses on this score but the speculation came from witnesses who had never talked to a writer or a publisher.

The great book of the testimony from knowledgeable people in the industry was that direct licensing would definitely be available as one of CBS’s former vice presidents Mike then testified, the top composers and publishers are intensely eager to have their work performed and the average composer is out of work.

If you let them know you are interested, you won’t be able to get them out of your office.

And this is why the District Court found that the record was replete with the Darwinian imagery of cut through competition of publishers hungry for performances of their works and why he concluded, hyperbolically of course, but why he concluded that if CBS just let them know.

The CBS was in the market for direct licenses, they would line-up at CBS’s door.

And these findings were adopted by the Court of Appeals, which found that direct licenses are available, that there can be a market for direct licensing, that this market can co-exist with the offering of blanket licenses.

William H. Rehnquist:

Miss Kearse, there is nothing in the composer’s contract with ASCAP and they would prevent them dealing directly with CBS?

Amalya L. Kearse:

Nothing at all Your Honor.

As far as BMI is concerned, CBS has raised an issue in its briefs or attempted to raise an issue in its briefs as to the availability of direct licenses from BMI affiliates.

Approximately year and half before trial, CBS and BMI entered into a stipulation which provided in effect that with respect to the availability of direct licenses from BMI affiliates, CBS and BMI would be governed by what the District Court found with respect to the availability of direct licenses from ASCAP members and that —

William H. Rehnquist:

So that factual question is covered by the findings of the District Court with respect to ASCAP?

Amalya L. Kearse:

Yes it is Your Honor.

And at the trail, repeatedly CBS used the stipulation in order to get into evidence, depositions and documents which on their face related only to ASCAP members and the availability of direct licenses from ASCAP members and BMI honored that stipulation and I see no reason why that stipulation should not remain in effect.

Lewis F. Powell, Jr.:

We have been told that CBS did not seek direct licensing, did other users do that?

Amalya L. Kearse:

I know of no instance in which a television network has actually sought direct licenses.

Lewis F. Powell, Jr.:

Do you know of any instance or does the record show any instance in which a party who has entered into one of these blanket contracts sought direct licensing?

Amalya L. Kearse:

We have in the record Your Honor, two evidence with respect to two experiences in direct licensing or attempted direct licensing.

In one instance both of which I might add were brought to the court’s attention by CBS, one is knows as the 3M incident throughout the court papers.

3M in the mid-1960’s decided to offer for sale tapes of recordings of background music.

3M attempted to get a blanket license from ASCAP.

ASCAP suggested for various reasons that 3M go directly to the writers and publishers.

3M did go to the publishers and approximately 80% of the publishers that 3M contacted did grant licenses.

The other —

Harry A. Blackmun:

When you speak of 3M, you are not speaking of Minnesota Mining?

Amalya L. Kearse:

Mr. Justice Blackmun, I am speaking of Minnesota Mining, it has come to be called colloquially 3M.

The other instance in the record with respect to an attempt at direct licensing occurred —

Harry A. Blackmun:

Miss Kearse, before you leave that, whether the 27 out of the 35 did sign up, but there were eight that refused do it, did not they?

Amalya L. Kearse:

There were eight that did not eventually enter into agreements.

John Paul Stevens:

Is there any finding in the record that the judge did find that there would be publishers who would lineup at CBS door, but is there any finding with respect to what percentage of the total inventory of music could be obtained by direct licensing if they cancel the blanket license which I suppose they would have to do before they would wanted to do any separate licensing?

Amalya L. Kearse:

I believe there is no finding in the record as to the exact percentage or the approximate percentage that would be available by direct licensing but we must remember that most of the music that is used on CBS television network is composed specifically for the program.

John Paul Stevens:

But the problem I take it is with the feature music primarily, the feature programs?

Amalya L. Kearse:

The feature music most of it is composed by persons outside of the program packager’s control.

John Paul Stevens:

Right.

Amalya L. Kearse:

A great deal of evidence was introduced by both sides at trial as to the proportion of CBS’s programs that used feature music.

When the trial started, there were I believe six or seven variety programs on CBS.

By the time trial was over, there was only one.

Potter Stewart:

But that makes sure that the feature music was small and percentage but extremely significant?

Amalya L. Kearse:

That it was very small in percentage, it is significant but in that the program packagers already are in touch with the copyright owners of that music that it would not be —

John Paul Stevens:

Is there any finding as to how much of the feature music that would be needed for their programming, they could obtain through direct licensing if they cancel the blanket license?

Amalya L. Kearse:

I do not believe there is a finding on that so far Your Honor.

John Paul Stevens:

Findings don’t differentiate among who would be lining up at CBS’s door, do they?

Amalya L. Kearse:

I think the judge concluded that publishers and writers in general would lineup at CBS’s door.

Your Honor, even the eight publishers who did not eventually enter into agreements with 3M, negotiated with 3M and several of them after refusing to enter into the agreements for the first series of 3M tapes attempted to reopen negotiations later with respect to the second series.

Some of them reached oral agreements with 3M which 3M then decided we are not appropriate or were desirable.

Judge Lasker did find that there was no concert of action.

All of the publishers had a very real problem with the concept of policing these tapes after the three-year license period would expire.

The tapes were to be sold, the amount of performance royalties was very small, the job of policing 20,000 doctors’ and dentists’ offices to see who could be gotten to pay a royalty fee after that three-year period had expired would probably be again not worth a candle.

Policing was a concern that was voiced by all of the publishers with whom 3M dealt, some of them decided to deal anyway, 80% of them, some did not.

John Paul Stevens:

How do they police it now?

Does ASCAP do it for them?

Amalya L. Kearse:

After the three-year period was over, only about a third of the purchasers of the tapes renewed their licenses.

So and I think very little policing went on because of the small size of the fee that would be available and the great cost involved in the policing.

So I think the policing concern which –-

John Paul Stevens:

Does not ASCAP generally police the transmissions and music such as that?

Amalya L. Kearse:

ASCAP generally polices performances of music but I believe that it took the position that with respect to the granting of direct licenses, it would not be appropriate for it to expend the funds that would normally be expended for the whole membership to police for a few and even when it does police, I gather there is evidence in the record to the effect that it looses money on the infringement suits that it brings and the policing that it does.

So it is not an economic proposition across-the-board and certainly if there are only a few publishers involved, it is not.

John Paul Stevens:

I had some problem understanding the whole policing concept.

Supposing that this 3M program just never asked for a license anywhere, they just started selling to doctors and doctors started playing records in their office, would not ASCAP police that activity just as part of their general undertaking to engage in policing for their members?

Amalya L. Kearse:

I assume that if ASCAP knew about it, it would do something about it but in that instance I think it would have a much easier road to travel against 3M rather than against the 20,000 doctors and dentists.

William H. Rehnquist:

Is there evidence in the record as to how ASCAP goes about policing, do they send patients to the doctors’ offices?

Amalya L. Kearse:

I believe that ASCAP has not policed the doctors and dentists.

ASCAP polices public performances in night clubs, bars, that sort of thing.

The other evidence of a historical attempt at direct licensing that is in the record is the attempt that was made by Warner Brothers back in the 1930’s when Warners as a music publisher had a valuable catalog that it wished to license directly.

Warner did not want to license through ASCAP and therefore withdrew its catalog from ASCAP and attempted to get broadcaster to take direct licenses.

The broadcasters did not want direct licenses and therefore Warner was unsuccessful in this attempt.

So of the two historical situations we have in the record, we have one user who wanted direct licenses and got them.

John Paul Stevens:

Miss Kearse, in the Warner Brother situation where the broadcasters who are not interested in dealing directly, do they have blanket licenses already?

Amalya L. Kearse:

They had blanket licenses from ASCAP.

John Paul Stevens:

Yeah.

Amalya L. Kearse:

Their blank licenses did not cover the Warner catalog because Warner withdrew its catalog from ASCAP.

John Paul Stevens:

I see, so they would had to choose in effect between —

Amalya L. Kearse:

They would not have —

John Paul Stevens:

They could have had them both.

Amalya L. Kearse:

They could have had both.

They chose not to take the direct licenses, they chose to do without Warner’s music.

And I point out these two situations because they are opposite sides of the coin.

In one, the user wanted direct licenses and got them and the publishers who wanted to license only through a middle man did not have his music used.

In the other, the publisher wanted direct licenses and the broadcasters wanted to license through the middle man.

John Paul Stevens:

Does the record tell us why the broadcasters would not take the Warner portfolio?

Amalya L. Kearse:

I do not believe the record tells us that.

It only tells us the fact that they refused.

John Paul Stevens:

Then what inference do you draw from the refusal for them?

What does that tend to prove?

Amalya L. Kearse:

I think the appropriate inference to be drawn is that it is the users’ choice, which transactional method he uses to get his music and if the music is not available by the means the user wants —

John Paul Stevens:

But may they are charging too much money or they did not like the music.

I mean from that one instance you draw the inference that the user is the one who dictates the terms of the bargain.

Amalya L. Kearse:

I think these two instances together show that fairly clearly Your Honor and I think there is nothing else in the record to indicate to the contrary.

Thank you.

Warren E. Burger:

Mr. Easterbrook?

Frank H. Easterbrook:

Mr. Chief Justice and may it please the Court.

The United States believes the three considerations govern the proper disposition of this case.

First, under one circumstances should agreements among competitors beheld on lawful per se, second are the blanket licenses of ASCAP and BMI so likely to be add a competitive that they come within this class and third, if blanket licenses are not always unlawful, should a per se rule nonetheless be employed because of the particular circumstances of one user or class of users of music.

I will address those questions in turn.

My first proposition is that per se rules should be employed only when a particular species of conduct is so likely to be anticompetitive, that a particular trial of particular circumstances would not be worth of time and effort because there are so few justified examples of that species.

In those circumstances, there is no reason to go through a full trial.

Per se rules are attractive precisely because they are understandable and certain.

They make compliance with the law simple, they make business counseling easy and they make trials short; they are thus highly desirables.

And the United States has consistently urged that per se rules be employed whenever that is feasible.

But if certainty alone were enough to call for per se treatment, all of antitrust law would quickly be reduced to a series of harmonies.

There must be some reason for each rule.

When we say that certain conduct is so likely to be anticompetitive that we can omit particular inquiry, we are talking about antitrust and economic injury.

Frank H. Easterbrook:

The court’s focus has been on economic efficiency.

When concerted conduct raises price, reduces the efficiency of production and decreases the amount of goods supplied, the consumer loses and he changes to vest desirable substitutes.

The prospect of earning especially high profits also induces firms to spend their time and resources gathering a monopoly and all of the resources used in this way are wasted.

But the harming question is economic.

Precisely because the harm is economic, the court has also considered economic benefits.

Sometimes collaboration even between competitors yields new benefits, lower costs and so on.

John Paul Stevens:

Mr. Easterbrook, does the United States have a view as to whether or not the blanket licensing here has any impact on the price level?

Frank H. Easterbrook:

The United States Your Honor did not participate in the trial of this case and has not fully examined the record of this case.

There is a legitimate concern I believe about monopolization under section 2 and because the trial of this case went of essentially on tie-in and price fixing grounds.

The United States believes that the possibility of monopolization what might be termed the Alcoa and United Shoe Machinery theory, was not explored as fully as it might have been.

It seems clear from the record in this case that there are limits on the effect that ASCAP could have on price.

At some point, the price ASCAP charges becomes sufficiently high that it is best expensive for CBS or for anybody else to seek direct licenses.

At that point, any authority ASCAP might have over prices expires.

And so in that sense, it is clear from the record of this case that the price ASCAP is charging is less than the price that CBS would pay through direct licensing, assuming that CBS’s behaving in a rational economic way.

John Paul Stevens:

Also Mr. Easterbrook, ASCAP has to operate under the provisions of that consent decree which gives judicial supervision or at least —

Frank H. Easterbrook:

It does Your Honor, it does provide there is both the compulsion that ASCAP permit direct licensing, not interfere with direct licensing in anyway, and a rule that the Consent Decree Court can set a price for anyone who applies and can not reach an agreement with ASCAP.

I must say that, that has never been done, that is the Consent Decree Court has never set a price.

There have been numerous applications of the Consent Decree Court that all have been settled, perhaps because the judicial machinery is even less well suited than the machinery of the Interstate Commerce Commission to setting reasonable prices for economic goods.

John Paul Stevens:

And slower it too.

Frank H. Easterbrook:

And slower it, and that is hard.

John Paul Stevens:

I am not sure you have answered my question.

My question is does the United States have a view as to whether or not the practice of blanket licensing by the two large sellers involved here has an impact on the price level?

Frank H. Easterbrook:

I am sorry Your Honor if my answer is sounded like evasion.

John Paul Stevens:

If anything, it sounded like you are saying it tended to lower the price.

Frank H. Easterbrook:

That is the tendency of my answer and it is – I must say that I can not give a definite answer precisely because —

John Paul Stevens:

If you do not have a view, you can simply say, no you do not have a view.

If you do, I would like to know what it is.

Frank H. Easterbrook:

I do not have a view but there are considerations that indicate that the price appears to be lowering.

William H. Rehnquist:

Well, Mr. Easterbrook, you are here I take it as a lawyer and not as a qualified expert testifying before nisi prius court as to the licensing of music and what its competitive effects are?

Frank H. Easterbrook:

Certainly not Your Honor, I was just attempting to draw inferences from the record bearing on the question Mr. Justice Stevens asked, I am not qualified as an economic expert by any stretch of the imagination.

John Paul Stevens:

I would have understood your analysis of proceed to have some relationship to your judgment about the economics of the situation.

Frank H. Easterbrook:

It does but that is also drawn from the record and from this Court’s cases.

But my point was that there are some forms of collaboration between competitors that are undoubtedly beneficial.

The formation of new firms, the mergers between existing firms, and the creation of a joint ventures, all involve competitors or potential competitors who cooperate in someway or other.

It is precisely because of these forms of economic cooperation without which one could not have a corporation or indeed much of any other economic enterprise are beneficial to the economy but the court has been hesitant to apply per se rules to economic cooperation.

The basic distinction I am suggesting in the formulation of per se rules is the one recognized by Judge Taft in his famous opinion in Addyston Pipe & Steel and an important foundation of antitrust law between naked restraints and economic integration.

Naked restraints between competitors rarely produce economic benefits and because they sometimes cause loss they are deemed unlawful per se.

Forms of economic integration on the other hand although they contain the potential for economic laws, also contain a great potential for gain.

And that brings to me my second proposition, which is that ASCAP is not a naked restraint.

ASCAP is clearly a form of joint venture.

As a rule, blanket licenses issued by ASCAP produced real benefits.

A blanket license is a product that only a joint venture can sell, no composer, no small combination of composers can sell what ASCAP sells.

What ASCAP sells is the right to use great quantities of music on the spur of the moment without searching for a composer, without negotiating for a contract and without fear of infringing anyone’s rights.

Users of music apparently find that package of rights valuable, if only because the cost of searching for a composer and negotiating a contract in many cases exceeds the total value of the music.

The figures given by CBS at page 22, first note of its brief, disclosed the cause of negotiating composition by composition through an agency and they run from $5-up per composition.

For many uses of music, radio, bars, and the like, the total value was significantly less than $5 and without some form of license of the sort ASCAP offers, those transactions would never take place at all.

Potter Stewart:

Mr. Easterbrook, you have repeatedly referred to ASCAP, you might understand that you mean generically to also include BMI?

Frank H. Easterbrook:

I do mean generically to include BMI and I am generally referring to the practice of offering blanket licenses.

In any event, with apologies to (Inaudible) , if there were no ASCAP, it would be necessary to create it.

The blanket license is beneficial to music users and its economic value rather than any arguments about market necessity makes per se treatment inappropriate.

To say a CBS does that ASCAP is unlawful per se because it fixes a price is to make antitrust law depend on tautologies.

Of course, ASCAP fixes a price, it must fix a price, every firm, every joint venture sets a price for the thing it makes and the members of the firm or the joint venture do not compete against each other within the firm to sell the thing they make at a lower price.

There is no competition in the sale of ASCAP licenses because only ASCAP makes ASCAP licenses and similarly there is no competition in the sale of BMI licenses, there is also no competition in the sale only Schick Razors, because only Schick make Schick Razors, that is a trivial argument.

The important question is whether there is competition in the sale of performing rights, not whether the joint venture is trying to compete against itself.

On that score, ASCAP and BMI have very little in common with price fixing cartels.

A cartel tries to drive up prices by curtailing supply.

Here there is not curtailment indeed because of the low price under the blanket license it may be that there is too much music use.

A cartel tries to stop competition among its members or at least stay agree not to compete with one another individually.

There is no such agreement here and it seems conceded and the District Court found that they would lineup at CBS’s door if they were asked.

So my argument so for has been that blanket licenses produce economic benefits.

Frank H. Easterbrook:

The per se rule does not apply to them precisely because joint venture of this sort offering a product of this sort have some economic utility.

Byron R. White:

Why do suppose the, Mr. Easterbrook, the individuals have not lined-up up at the door anyway?

Frank H. Easterbrook:

Mr. Justice White, so long as CBS maintains its blanket license.

Byron R. White:

Well, has it got one now?

Frank H. Easterbrook:

It is operating under an interim license allowing it to use all of ASCAP’s and BMI’s repertory.

Byron R. White:

I know but it is terminable will or whatever.

Frank H. Easterbrook:

It is terminable will.

Byron R. White:

So is there anything in the record indicate that any individual has ever come around to CBS willing to license individual?

Frank H. Easterbrook:

The only indication in the record in that is the Warner Brothers episode which was discussed by Miss Kearse, in which someone came to CBS or not necessarily CBS but to users to radio networks, and were turned down.

Reason for that not necessarily the Warner episode but the reason in general if one publishing company showed up is that under the ASCAP blanket license, CBS has the right to use those compositions at zero marginal cost, they won’t pay additionally for them.

The impetus to change the system has to come from the user who can announce say as of a year from now, I will stop buying a blanket license and will shift to either individual licenses with particular composers or to per-program licenses to pickup those things on which I do not make individual deals.

John Paul Stevens:

So you think it is just that the copyright, individual copyright holders just know when they would be doing a useless thing?

Frank H. Easterbrook:

It would be completely useless for them if we go to CBS now.

Warren E. Burger:

Is there anything under these arrangements that prevents the — I should say first, assuming there was no ASCAP arrangement at all.

Is there anything to prevent anyone from broadcasting or copying a copyrighted piece and then keeping a record and paying the royalty?

Frank H. Easterbrook:

As a matter of convenience, it may be that if you keep a record and pay a royalty, no one will prosecute you, but in fact the bond requires that you have the license before you make the broadcast; that provides for a free economic bargaining.

If you first broadcast it and then go and tender $2, it is very difficult to reach an unbridled economic agreement between a seller of rights and a buyer of rights.

It is a way to comply (Inaudible).

Warren E. Burger:

(Voice overlap) make a copy of recording in the amount, under that $2 arrangement?

Frank H. Easterbrook:

There is a provision in the law with respect to mechanical recordings providing that anyone can use or copyright a copyright for a little more than $0.02 per copyright.

In that compulsory license was put into the law because of difficulties in policing because of difficulties in setting royalties etcetera.

But that is I believe the only provision of a law providing for a compulsory license at determining fee.

In other cases, these are supposed to be negotiated in advance to seek permission.

Byron R. White:

But is not it a criminal offense or you get the license?

Frank H. Easterbrook:

It is criminal offense.

Potter Stewart:

Mr. Easterbrook, part of your answer to the Chief Justice reminded me of, CBS’s argument with respect to music that is already in the can as it is called recorded and the fact that with respect to that, they would not and could not be free negotiation for the same reason that you indicated in part of your answer to the Chief Justice.

Frank H. Easterbrook:

Mr. Justice Stewart, it is I think a little difficult to determine how those negotiations would come out.

As we say in our brief, that has some of the characteristics of bilateral monopoly.

The CBS which owns music in the can, can say unless you give me a license for cheap, I will never broadcast this and you will never get a penny.

The owner of the copyright can say unless you pay me a great deal of money, I will deny your license and you will never be able to get to broadcast it and it is worth a lot of money to you to broadcast.

Potter Stewart:

And that’s that ladder that suggests —

Frank H. Easterbrook:

It is a two party hold-up and what the District Court found was that in the circumstances of the two party hold-up, a fair price would be reached.

There are other answers to the music in the can, problem among them the per-program license.

If for some reasons CBS is unable to obtain individual licenses on those kinds of things, it can obtain a per-program license available under the consent decree.

And there is also I believe some oddity in CBS’s making this argument because for years, it has always had the option of obtaining a contingent license, a license in the nature of, if we ever drop the blanket license, we are licensed to perform this at a royalty of blank percent or blank dollars.

That license, a contingent license of that sort should be easily available in the market on request.

CBS has never requested such a license, and to this day has not obtained it.

Potter Stewart:

And that kind of license would cover music in the can?

Frank H. Easterbrook:

Yes it would and it would alleviate the problem prospectively but the suit began almost a decade ago, CBS has had the option of seeking such licenses and has never sought them.

John Paul Stevens:

It would have to pay for such license, would it not?

Frank H. Easterbrook:

It is not true Mr. Justice Stevens, what the nature of the payment might be.

John Paul Stevens:

They have to pay something.

I do not imagine the publishers just as a matter of its charity just say, here, you can have this option.

Frank H. Easterbrook:

It is in the nature of an option Mr. Justice Stevens and options are generally available although not necessarily at a high price, but the promise to pay, the major promise to pay would be if we ever use it outside a blanket license, we will promise to pay.

John Paul Stevens:

I gahter, but would not you agree there must a price pay given for the option?

Frank H. Easterbrook:

Yes, I would certainly agree that you have to pay a price for the option.

John Paul Stevens:

Which will be money down the drain if they never cancel the blanket license?

Frank H. Easterbrook:

But their argument of course is they want to cancel a blanket license and they want to setup a circumstance under which they can do it.

The point I was making was that they have not setup the circumstance and now it is very hard for them to complain that they can be held up when they have not done what is necessary and within their power to prevent the hold-up.

John Paul Stevens:

If they are going to pay for it.

Warren E. Burger:

Mr. Hruska?

Alan J. Hruska:

Mr. Chief Justice and may it please the Court.

I represent CBS, the plaintiff in this case and the respondent on this appeal.

The principal issue on this appeal is the correctness of the Court of Appeals’ determination that defendant’s fixed prices or more specifically, whether a combination of otherwise competing music publishing corporations are fixing prices in violation of section 1 of the Sherman Act, when the prices at which they sell music performance rights for television network use are not determined by a process of price competition but are determined set by the combination itself and are indeed annual single package prices to approve of all the members’ copyrights.

By law, copyrights on original musical compositions are granted to the composers of those compositions.

As a matter of practice, those copyrights are sold to the music publishing corporations and the licensing of music rights to motion picture producers to the makers of phonograph records and to the publishers of sheet music.

Music publishing corporations do deal directly with those users and do engage in price competition.

And the licensing of performance rights for television network use such as CBS music publishing corporations manage to sell in a thoroughly noncompetitive way as in so far as price is concerned.

How do they do that?

By a formally structured, controlled and pervasive system than any ordinary price fixing arrangement.

Alan J. Hruska:

In the routine price fixing case, it is common to find that the sellers have gotten together not uncommonly in a hotel room and it either by explicit agreement or by some well placed words and some winks and may be some nuts have agreed to set price at may be a $1,000 a unit.

Quite really, will any of those sellers leaving that room actually sell at a $1,000 a unit?

They will negotiate down from that price but it will be a focal point for negotiations and such an arrangement is obviously illegal per se.

Here, the music publishing corporations do not agree to sell individually at a $1,000 a use.

They agree to have a central instrumentality, a joint sales agency ASCAP or BMI, sell a blanket license to their entire pool of copyrights at ‘X’ million dollars a year and then to distribute $1,000 to themselves in respective each use the licensee makes of their music.

Now, this quite obviously is a very effective means of eliminating price competition among otherwise competing sellers of removing —

William H. Rehnquist:

Mr. Hruska, what is your answer to the petitioner’s contention that if you have two individual general contractors that go into partnership, they sees competing too and bid as a unit rather than formally is they then supplying two separate prices.

This was not tried under a monopolization theory, was it?

Alan J. Hruska:

Well, yes it was.

We have charged in this case, price-fixing, tie-in and monopolization.

We definitely did try a monopolization case.

William H. Rehnquist:

And did the District Court and Court of Appeals rule on your monopolization?

Alan J. Hruska:

Yes indeed, they did.

The District Court ruled that ASCAP and BMI were not monopolies because they were not the sole source of supply of the music and their approvals.

That ruling we claim was wrong as a matter of law, a monopolies need not be the sole source of supply monopoly as measured by the handicap that the monopolies can impost and the handicap here as I will get you in a few moments, it is quite significant based on the District Court’s own findings.

William H. Rehnquist:

What did the Court of Appeals do with it?

Alan J. Hruska:

The Court of Appeals appalled that finding, excuse me, appalled that ruling of law.

William H. Rehnquist:

So that you are challenging the two courts?

Alan J. Hruska:

We are indeed.

William H. Rehnquist:

But to the question about the two general contractors who form a partnership and from then on did singly rather than separately.

Alan J. Hruska:

Well I think under existing law that is price fixing.

However, I should make this point.

I think that it is certainly a more difficult question.

When you get to two individual entities, otherwise competing entities, which if they were to merge, would clearly not violate section 2, and nevertheless are fixing prices.

William H. Rehnquist:

Do you mean Judge Taft was wrong in his expression of views in the Addyston case?

Alan J. Hruska:

Well, I think that we can be far more confidant that the benefits for which we permit mergers to occur will actually be achieved when the firms decide to merge.

On the other hand, when the firms decide not to merge but to fix prices and then to throw some integration into that process, then we can be far less comfortable, we are not dealing here with two little firms.

William H. Rehnquist:

Well, I have the same difficulty with your answer that my brother Stevens did with one of Mr. Easterbrook’s answers, is that an answer to my question, do you agree or do you not agree with Judge Taft’s observation in the Addyston case?

Alan J. Hruska:

I am not sure I understand completely Mr. Justice Rehnquist, which observation you are referring to?

William H. Rehnquist:

Well, the observation that if you applied the logic of your, I won’t say your principle, but this principle towards extended to – it would extend to two individual businessmen who form a partnership.

Alan J. Hruska:

Yes the logic would extend to not to form a partnership, no, but to enter into a price fixing arrangement on the bidding for a particular job, then perhaps, yes.

William H. Rehnquist:

Well, how about the (Inaudible)?

Alan J. Hruska:

Although the logic — but I have got to complete my answer to that, I really have to make this additional point.

Although the logic would extend to that, it is not necessarily so the law must extend to that.

The law had — there has been no case in this Court which has so ruled number 1.

Number 2, we of course in this case are dealing with a total industry of otherwise competing sellers, we are not talking about two little firms, we are talking about all otherwise competing music publishing corporations in this industry.

Now, if you are — obviously if those people would sit down in a hotel room and fix prices at $1,000 a unit, that will be a clear cut case.

What they have done is far more effective than that.

They have created a central instrumentality which has control over that price, which ensures that price.

Now, if there is anything anomalous in the antitrust laws, it would be to on the one hand prohibit a darn variety hotel room fix, with no centralized control, with cheating all over the place, as is common in routine price fixing cases.

And on the other hand, permit the same sellers to do it the most efficient way, to take price completely out of the harsh realities of a competitive marketplace.

If the steel companies were doing this, if the steel companies turned all their steel over to a joint sales agency, the American Iron and Steel Institute, has then have that institute sell their steel at a $1,000 a ton, a defense of that case will be left at a court.

William H. Rehnquist:

What if two relatively minor steel companies merge and from then on, they had a common sales agent who quoted a single price?

Alan J. Hruska:

Well, if they merged obviously under existing law that is basic distinction we make, we test that under section 2 or section 7 and we do that because we perceive certain benefits commonly achieved in monopolization cases and we perceive the antitrust tools section 2 and 7 adequately to judge whether those benefits outweigh the added competitive effects.

William H. Rehnquist:

Well.

Alan J. Hruska:

Yeah.

William H. Rehnquist:

Mr. Hruska, I understand that you would like to stay on both sides of this question because —

Alan J. Hruska:

No, no, not at all.

Byron R. White:

Well, you do though, do not you?

Are you defending the results that you got in the Second Circuit?

Alan J. Hruska:

I am defending the result I got in the Second Circuit on pricing fixing, yes.

Byron R. White:

But you do not want to destroy the common sales issue, do you?

Alan J. Hruska:

I certainly would like to enjoin and ask —

Byron R. White:

You just like to get a better deal out of them.

Alan J. Hruska:

No, I prefer to enjoin blanket licensing, so does my client.

Byron R. White:

Yeah, but is that the Court of Appeals’ ruling?

Alan J. Hruska:

The Court of Appeals suggested the adoption of per-use system.

Byron R. White:

Yes, so —

Alan J. Hruska:

We accept that we do not prefer, we accept it.

Byron R. White:

Well, so are you defending it or not?

Alan J. Hruska:

Yes, I am quite prepared to —

Byron R. White:

But even though under your theory, it is illegal?

Alan J. Hruska:

Under my theory, if the defendants did it themselves, it would be illegal.

On the other hand —

Byron R. White:

So are you defending a result, a remedy the Court of Appeals gave, which according to your theory is price fixing?

Alan J. Hruska:

In the unique circumstances of this case, that happens to be sensible and to bring relief, like the relief granted in National Lead and Heseltine and all the other cases —

Byron R. White:

So, you would now suggest that you are on both sides of this question?

Alan J. Hruska:

Well, if that is both sides, then I am, but I should say that compulsory licensing on reasonable royalty turns has been granted in patent cases, in the National Lead case, in the Heseltine case and a flock of others, it could be directed to the individual music publishing corporations rather than ASCAP and BMI and form, I do not think that makes much difference.

The per-use system is an interim measure, naturally by — inherently it is going to be an interim measure and that is so because the very process of per-use licensing is going to breakdown the barriers of direct licensing that I will get to in a few moments.

Byron R. White:

Alright, if you are allowed to.

John Paul Stevens:

Mr. Hruska, I hate to discontinue the interruption, but sometimes the theory has trouble filtering through a very, very long brief and I would like to know whether your price fixing theory is that it is per se unlawful to have two competitors to use a common sales agent, for example, automobile companies sometimes use the same too, or say foreign car company and a Mexican will use the same dealer.

Under your theory, is that per se unlawful?

Or alternatively, is it your theory that it is only unlawful when it is a substantial portion of the market, for example, all the automobile companies using a common sales agent?

Alan J. Hruska:

Well, it certainly our position that when a substantial portion of the market uses a common sales agent, it is per se unlawful.

And it is not our case because we have not only substantial portion of market, we have the entire market involved in this case.

But it is also a theory to be consistent with our theory, that if several or two otherwise competing sellers, use a common sales agent that in almost all circumstances that I can conceive up, that should be unlawful per se.

The reason I say that is it is very difficult to conceive of the situation in which those two companies, let us take the worst case in my standpoint, those two companies in order to achieve whatever integration benefits they are trying to achieve with their joint sales agency really have to fix the price we have in this market —

Byron R. White:

Well, I will say that they just both want to use a effective sales agency and want to go to the sales —

Alan J. Hruska:

If they do not have to fix the price, the Harry Fox Agency for example, which handles on behalf of music publishing corporations, which handles the licensing of mechanical rights and right through motion performance rights and sync rights for motion picture producers, does not fix the price.

They get individual quotes from each music publication corporation.

Now, you can run a common sales agency that way.

There is nothing against it.

In other words, each time the common sale agent wants to sell the goods of one of the members of this joint venture; he simply calls —

John Paul Stevens:

Well, he is more a broker, is not he?

Alan J. Hruska:

Well, not necessarily.

No, he is — The Harry Fox Agency does not consider itself a broker.

They say they testified in this case, they consider themselves sales agents for the music publishing corporation.

The Harry Fox Agency is a subsidiary of the National Music Publishers’ Association; it is a wholly owned subsidiary of that trade association.

John Paul Stevens:

Just so I understood your theory, then your theory does not depend on the percentage of the market that the principles of the common sales agent?

Alan J. Hruska:

True, it does not depend on the percentage of the market.

Byron R. White:

As long as he can set the price.

Alan J. Hruska:

That is right, as long as he is fixing the price for his members in essence or his clients or his customers.

Now on the other hand, a ruling in this case does not necessarily have to decide that question, because as that keeps coming back to, we are not dealing with two little companies in a very large market, we are dealing with all the companies in the market.

Now, the ASCAP defendant say, we had a consent decree.

When you, the television networks were formed and took your first license in 1946, ASCAP’s right to license or approval was effectively exclusive as the Court of Appeals found, but in 1950 that piece of paper that consent decree was changed.

Now that piece of paper makes ASCAP’s right to license nonexclusive.

Well, that is very interesting one might say, but has anything in fact change for 29 years as a result of order in that one word on a piece of paper and the clear answer to that is no, nothing has changed.

Are you still selling your performance rights at prices fixed by the ASCAP Board as you have done for 65 years, and the answer to that question is yes, and is that piece of paper somehow unfix the prices that which you are actually selling through ASCAP, and answer to that is no and do not the conspirators in an ordinarily price fixing arrangement also have the right to sell it individually negotiated prices in view of the fact that pricing fixing arrangements are unenforceable, of course the answer to that is yes, and are the case books filled with successful price fixing prosecutions of people involved in the fix who frequently departed from the fixed price, and of course the answer to that is yes.

And but ASCAP says, you CBS should ask, you should ask the music publishing corporations to engage in individual negotiations, why?

Does any customer of a price fixing consortium have any obligation in law, that ask the conspirators to plea stop fixing prices to himself and all the other customers in the market as a pre-condition for enjoining the fix, certainly not.

The fact that otherwise repeating sellers are selling at agreed upon prices is enough.

If ten major oil companies fix prices at $1000 a barrel, could there be any doubt at all that a single buyer of oil who had refused to deal with those ten companies precisely because of the fix and had dealt with non-conspirators, any doubt at all that, that company could enjoin the fix or let us suppose that there is ten major oil companies decide to fix prices to the 50 largest customers.

William H. Rehnquist:

Is it entirely fair Mr. Hruska to analogies this case or you dealing with copyrights which have to be policed in order to be enforced with barrels of oil?

Alan J. Hruska:

I do not see why not.

The policing aspect of this case is utterly meaningless.

Music publishing corporations can police or they can police jointly, but they do not have to fix prices in order to police.

William H. Rehnquist:

Well, but some organization, each individual music publishing house would have great difficulty policing doctor’s offices and Muzak places and that sort of thing.

Alan J. Hruska:

I think under the Aiken decision, the new copyright statute, doctors’ offices are not infringing on copyrights, but you do not know, today’s world anybody who wants to buy a phonograph and a phonograph record, whether he is running a barbershop or a hotel or doctors’ office, can set that record player up and start playing music, as I said, I do not think it is an infringement, but the policing aspect of this is really a separate thing.

Publishers who police together do not have to fix prices together, they do not have to sell together.

There is really no necessary connection.

The connection comes about as a result of the fact that when they do so collectively, then of course they got to have a vast monitoring system to keep taps on everybody’s uses so they can take that big lump sum figure they get from the users and distribute it in this managed market way to their members.

William H. Rehnquist:

It was my understanding that the reason that they had the blanket license with that even though they all are banded together for the purpose of policing.

Even though the large joint organizations ASCAP, I am sorry if I am interrupting your schedule —

Alan J. Hruska:

No, no, I want to deal with the questions.

William H. Rehnquist:

ASCAP or BMI were incapable of policing individual users, then therefore the blanket license.

Alan J. Hruska:

Well, that may well have been and no doubt that was one of the inspiring reasons for the creation of an organization like ASCAP, but as a matter of logic and as a matter of plain economic fact in which no one really disagrees about, to in order for publishers to police together or monitor users’ uses together, they do not have to fix prices.

For example, if they were to get out of a television network market, just get out of the cartel, ASCAP and BMI so that licensing could proceed on a direct basis.

If they wanted to monitor the uses of the CBS television network and if they wanted to do it jointly and indeed if they wanted to do it through ASCAP and BMI, that is fine, they can do that.

Monitoring consists of nothing more than getting reports from the networks as to what is being used, turning your sound audio, taping equipment on the networks —

Thurgood Marshall:

Mr. Hruska, what about the man that has copyrights to three songs?

Thurgood Marshall:

Who is going to protect him then?

Alan J. Hruska:

His music publishing corporation protects him now.

We do not —

Thurgood Marshall:

I thought ASCAP protected them.

Alan J. Hruska:

Well, if in the dealings that his music —

Thurgood Marshall:

Well, I mean how could he negotiate with CBS, a man who has got three songs, and (Inaudible)?

Alan J. Hruska:

Well, if he has not got a music publishing corporation now, because as I say, it is a matter of commercial practice —

Thurgood Marshall:

But he has there somebody, would not he?

Alan J. Hruska:

Well, he is got to have somebody, he can have himself, he can have a publisher.

Thurgood Marshall:

How himself can happen?

Alan J. Hruska:

Excuse me, sir.

Thurgood Marshall:

A person who has got three songs can compete with CBS?

Alan J. Hruska:

It is not a question of competing —

Thurgood Marshall:

Well, you said he can protect himself, I want to know how in the world he could.

Alan J. Hruska:

Well, the people who supply music now, who write music originally for television network use, deal of course with the program packages.

CBS as I am sure you understand produces very few of its own programs.

They deal with the program packagers and they do very well.

They get between 1,000 and $2,500 a week for orchestrating, composing the music, orchestrating the music and directing.

They deal for everything but for music performance right, that is covered by the ASCAP like license.

Thurgood Marshall:

(Inaudible) and he go to sell it to CBS, get CBS to use it, how can he do that?

How could he tell CBS that, if you use my piece, I want to be paid.

Let us say he lives in Hawaii, how he can he be sure that he was being paid without ASCAP?

Alan J. Hruska:

Well, there are really two different questions.

One is if they use the music, how can he would be sure that he will detect such a use?

Thurgood Marshall:

But is not the real problem is this is all set up long before the broadcasting industry?

Alan J. Hruska:

Yes, it was set up.

Thurgood Marshall:

And now you are trying to bring them both together now?

Alan J. Hruska:

No, I am trying to take them apart.

Thurgood Marshall:

Yeah.

Alan J. Hruska:

Yeah.

Thurgood Marshall:

I stand corrected.

Alan J. Hruska:

Yeah.

I was up to the point Your Honor was I was positing the situation of major oil companies conspiring to fix prices to their 50 largest customers and suggesting that the 50 first customer would plainly have a right to obtain an injunction against that price fix because the conspiracy would obviously pollute the market in which their customers are attempting to buy, so that if CBS would drop its ASCAP market license and attempt to bypass and ASCAP, CBS, like the 51st customer of oil, would certainly have the right to enjoin the price fixing that was still going on directly in sales to ABC and NBC, even though CBS has stopped dealing with the cartel.

John Paul Stevens:

Again and Mr. Justice Rehnquist asked you if the analogy really is fair, the 50 oil companies do not sell anything that no one company could sell, but in this case, the government particularly stresses the point that ASCAP sells a product that no one composer could sell, namely the blanket license and that the blanket license has independent economic utility. How do you respond to that?

Alan J. Hruska:

Absent conspiracy, Twentieth Century Fox cannot market the films made by MGM and United Artists and Columbia Pictures and all the other motion picture companies, but that is not excuse for price fixing, that is a definition of price fixing.

Now, the department’s point is literally based on several “benefits” that the department believes it perceives in this situation and those benefits are illusory.

Those are things that we do not need.

What we are dealing with here when those benefits are sided to us, it is a fixed price in a fancy bottle.

The benefits consist of immediate access to songs as soon they are written, that is very nice and —

John Paul Stevens:

Here is a benefit to it?

Alan J. Hruska:

Well, but it is totally unnecessary if we have got to choose between getting a competitive price and getting a fixed price in this particular fancy model.

John Paul Stevens:

Well, maybe you would rather have something else, but I do not think you can deny that there are some benefits to the blanket license.

Alan J. Hruska:

They are not appreciable, they are not significant and they are not justifications of price fixing.

Harry A. Blackmun:

As soon as you admit that there is some benefits, it seems to me, it destroys your analogy to the oil companies and all the rest.

Alan J. Hruska:

I do not believe so Your Honor, because oil companies can create benefits too.

Any cartel of sellers can manufacture benefits if they cartelize their sales.

For example in some industries, you could have a situation where 50 sellers would simply fire most of their salesmen, they did not achieve transactional efficiencies, they would be able to do so because they had a common sales agency.

We are going to permit price fixing to go on because that happens that is a benefit, but it certainly not a benefit justifying price fixing.

Warren E. Burger:

I get lost when anyone deals with comparison of 50 oil companies selling oil presumably in about the same kind of containers and the kind of situation we are dealing with here, what is being sold here under the license is not frangible, is it?

Alan J. Hruska:

No.

Warren E. Burger:

Each one is —

Alan J. Hruska:

But they make it frangible by selling your blanket license, but it is not naturally or inherently a frangible product.

Warren E. Burger:

The licensee does not just call up and say send me music and except Jazz music, when he is running a station which emphasis classical music.

Alan J. Hruska:

On the contrary, a great deal of investment is engaged in by the independent packager of each of these programs and simply the selection of the music for his program.

So what is not frangible and on the other hand, the District Court did find that copyrights in various classes reasonably unchangeable that they compete with each other, so we are not dealing with non-competitive products, we are certainly dealing with copyrights that compete with each other when they are being pervade to motion picture producers.

Indeed one of the ironies here is that some of the motion picture producers are the very people who are making television programs.

And when they deal in motion pictures, when they are making motion pictures in their studios, they are getting competitive prices on music.

When they are making television programs in their studios, they are not.

We have the market as I say cartelize, but I would like to inject some further reality into this situation.

The reality is in purpose in effect in the first place, we got to look at who the music publishing corporations that populate the ASCAP Board year after year or who are they that accept these blanket licensing fees, they are Warner Brothers and they are Twentieth Century Fox and they are MCA Universal and Paramount, which as all we know subsidiary of Gulf and Western United Artists, subsidiary of Transamerica and Chappell Music and Sherman Music, a pair of (Inaudible) like a hardcore of the old line music publishing corporations which control the standard compositions that are used often on television networks.

Alan J. Hruska:

In other words, we are dealing here with economic pigmies on the other side.

And is there any doubt at all about their purpose in maintaining the system.

The purpose of this combination that it is to maintain prices, I submit that there is not at all.

The very counterclaim in this case flatly states that CBS has attempted to enjoin the blanket licensing system is part of plan designed to press the price paid for music performance rights and if their purpose in opposing the elimination of the blanket licensing system is to avoid a depression of the price.

Their purpose in maintaining the blanket licensing system is obviously to maintain the price.

In other words, this argument by the ASCAP defendants is subsequently identical to the argument made by the society of professional engineers that competitive bidding would pressure price reductions.

It is as clear an admission of any competitive purpose as one could possibly fine and it is far familiar one.

We have cited rather large collection in our brief, such as the speech given by ASCAP’s president some years ago that the central purpose of ASCAP and the Writers Guild and similar organizations was to resist the splitting of all rights so that we could be picked of one by one, or the testimony given in this case by ASCAP’s Board member and officer Mr. Brettler, who is also the head of Shapiro Bernstein Publishing Company, that the benefits of hiring the ASCAP which he describe as a legal monopoly where that in unity there is strength and added disunity, there is weakness.

And the record is filled for this.

And just as reveling our defendant’s intention to maintain prices to the blanket licensing system are these facts.

ASCAP pays out to its members on a per use basis.

IE, it pays its members a $1,000 for every future use of their music on the television network, but ASCAP refuses to take in on a per use basis.

IE refuses to charge in that network separately for each use.

Is blanket licensing therefore are necessarily restrictive and deliberately so and is deliberately designed to preclude price competition, of course it is.

The blanket license is an all or nothing deal, either you take the entire pool or you get nothing.

That means if you take the entire pool that direct licensing is obviously silly because then he was going to pay twice from the same user.

If ASCAP agree to take in on a per use basis that would mean that the program packagers, the people who make the television programs and sell them to CBS could immediately start direct licensing for the preponderance of the composition they use, both music written originally for television by their own staff writers and publish music and get some form of price competition going at once and so can CBS for relatively few programs that it make itself.

William J. Brennan, Jr.:

Mr. Hruska, what do you understand the theory the Court of Appeals was in indicating that the only thing that is wrong with this arrangement is that licensing is not on a per use basis?

Alan J. Hruska:

Yes, right.

William J. Brennan, Jr.:

Under the Court Of Appeals’ decision then ASCAP would be wholly acceptable as long as it license on a per use basis, is that it?

Alan J. Hruska:

Well, they did not say that exactly Your Honor, No, they said ASCAP — they said that the price fixing, the antitrust violation was going on might be relieved by the per-use system, on the other hand I recognize that the per use system might have a continuing effect on direct licensing prices, they were not persuaded that, that was so, but they thought it might be so and they suggested the District Court that this be tried out, but the whole suggestion there, I suggest —

John Paul Stevens:

Now what was the theory of the suggestion that perhaps per-use licensing might survive?

Alan J. Hruska:

Well, because the Court of Appeals perceived that the present system creates a substantial disinclination, otherwise there are cartel created values here to be preserved and the Court Of Appeals recognized those values as this Court did in the Mason case.

Byron R. White:

Well, as I perceive your argument, you are not accepting that theory?

Alan J. Hruska:

Oh no, on the contrary, I am wholly endorsing that theory, in fact I argued that to the Court of Appeals.

Byron R. White:

You are?

Alan J. Hruska:

Yes.

Byron R. White:

So ASCAP may proceed as long as it gives you a better brake?

Alan J. Hruska:

Oh, no if that is the theory you mean that I am wholly endorsing, the answer is I accepted I do endorse it, even though I must note on behalf of my client that we would prefer to enjoin the system entirely, to enjoin blanket licensing for television networks.

And the reason we prefer that —

Byron R. White:

Are you submitting —

of course, that would give you more of a remedy than you have gotten, are you —

Alan J. Hruska:

To give us a more effective remedy, I think ultimately, although they argument otherwise.

Byron R. White:

They would certainly expand your relief under the judgment, if we purported to agree with you?

Alan J. Hruska:

I do not know that I really regarded as an expansion.

I think if you think in term, if you think of a per-use system, a little hard to pursue, really interpret how to —

Byron R. White:

How you can have both ways in that?

Right now, there is a remand of the District Court under which a per-use licensing would be tried out and under your theory, it should not be tried at all.

Alan J. Hruska:

No Mr. Justice White, I have not made myself clear, let me try to do so now.

I think in a relatively short period of time and I hesitate to quantify that exactly, but a relatively short period of time, either form of relief is going to end up at the same place.

Now, the reason I think that and there is lots in the record to support this, is that if you start with a per-use system, that means ASCAP will be – that music will be available from ASCAP, whatever the Court sets as a price, ‘x dollars’ a use, so the court may not set the price until he sees what the prices are in direct licensing transaction and gear the per-use price of that.

But whatever that price is set, that will be the amount of money for which per-use you can get music from ASCAP.

On the other hand, you can also deal directly with Music Publishing Corporation.

Now, to get to a per-use system, obviously there must be a declaration in this case (Inaudible).

That declaration coupled with the inauguration of the per-use system is going to renounce the music publishing world as it must that blanket licensing is over, there is no further possibility of blanket licensing.

They will have no choice whatever, let me sure of a boycott, they will have no choice whatever then for the first time to create the direct licensing facilities.

We have got to recognize that we are dealing with the music publishing industry that lacks the personnel, the established operating procedures, any of the forms, any of the consents they are going to have to have from their writers to engage in direct licensing, none of that is in existence, none of that is in place.

The District Court found, excuse me —

Byron R. White:

The district court found Mr. Hruska that gave them a year’s notice or year and a half, something like that, there would be plenty of time to setup all that.

Alan J. Hruska:

Yes, the District Court found that with all period advance preparation, which you read at particularize the page 107 of the record and I make a note of that page because that is a very important page to resolve a dispute that seems to have come about through the reply briefs.

(Inaudible) that he found that from the time that CBS announced its intention to engage in direct licensing and he also said that there would be inauguration of direct licensing facilities until CBS made that announcement.

From the time that CBS announced to the time that, I think he referred to it as well all machine, it would be in place that would permit direct licensing to occur, would be at least a year, that is what he said.

Now, he also suggested to us, a lot of phrase that we might do during the process of that year, we might require the movie companies who make our programs to call a flop, the catalogs and their music publishing subsidiaries that presumably on threat that their production services would not be agree with favor by CBS unless they did that, he suggest we go out and get many blanket licenses which are probably tieing on this Court’s decision in Leibovitz and Paramount.

He suggested we do a lot of other things.

Now I suggest Your Honor, I suggest that this sort of rigamarole to get yourself into a competitive market, is really far worse than the rigamarole that a customer for engineering services have to go through in that professional engineers case.

After we recognize that, that customer if he wanted to nominate one engineer and get his price and then resume that relationship and nominate an other engineer and so forth, could get himself access eventually into a competitive market, but here we are dealing with a far bigger problem.

And we got to at least expend all these efforts and takeover these risks and by all these options, which Your Honor referred to before and all economists in this case agree, we would have to pay for those options and pay duly.

We have to go through all this rigamarole to get to competitive market.

And I just do not think that the antitrust laws are required in it, and bear in mind that professional engineers’ case was not a case in which the engineers had agreed on the prices that they would sell.

Here is a case in which otherwise competing sellers are agreeing on the price which they would sell and there is no possibility if we went through this rigamarole and if we did pay the penalties on music in the can.

Alan J. Hruska:

There is no possibility we would get a competitive price.

Every ASCAP publisher knows, every time he sees a piece of his music being used on CBS that is a $1000 in his pocket.

If we abandon all ASCAP license and if we try to license directly, the first place he is going to start, his first frame of reference is going to be a $1000 a use.

We have plenty of testimony in this case about that.

It is an admitted fact; you see that in the briefs.

ASACAP is saying now in their reply brief, well, you may be right, what so wrong with that, why is that any different from what in the other seller in ordinary market does, takes in account prior prices.

But here we are talking about not the influence of the sellers own prior prices, not the influence of competitive market prices, we are talking about the influence of a consortium price, where price has been agreed upon and that is different.

On that effect, this is ineluctable.

Now the Court of Appeals said it was not persuaded that, that effect would occur and I suggest that, that was an error of logic and economics.

This was an admitted point by economists of the parties themselves.

And once you — and it is an obvious point, and once you have get a stabilization effect like that injected into a market, it does not go away, unless you can reduce the price to zero and that does an exist outside of some pathological economic text book model.

It certainly does not exist in the motion picture filed where motion picture companies are paying between $750 and $20,000 for each use.

BMI makes a ceiling price argument related to the per-use licenses, which could not possibly be have any effect at all, if the music prices could be driven down to zero.

The District Court made a finding in the 3M incident that a lot of publishers refused to deal because the money was not high enough.

And remember, who are dealing within the other side of this bargaining table.

We are not dealing as I said before with economic pigmies and it is not even CBS is going to be buying the music, it is going to be the independent packagers and those are the same people who very often pay 2 or 5 or $10,000 for music performance rights for them making motion pictures.

John Paul Stevens:

Do you agree that the record does not indicate at all why was that the broadcasters did not want to deal with Warners in the episode?

Alan J. Hruska:

Well, the Warner Brothers incident occurred in the 30’s, it was radio broadcasters.

I do not think the record is — I do not think anybody was around.

Still who was there and the incident except for one music publisher, Buddy Morris, who was a member of ASCAP Board and Mr. Morris said that one of the reasons that Warner Brothers backed down and backed down pretty soon.

I mean this thing did not get off the ground really.

One of the reasons they backed down was because the writers were up in arms and why were the writers up in arms, they were up in arms because of what they perceived to be Warner Brothers disloyalty to ASCAP.

Now —

Potter Stewart:

Lyric writers or music writers?

Alan J. Hruska:

Music writers, yes, they, you know, song writers who assigned their rights to Warner Brothers and then saw Warner Brothers leave the family, leave the —

William J. Brennan, Jr.:

The composers you mean?

Alan J. Hruska:

The composers, yeah.

And the 3M incident, well, you know, we do not really attack the court’s finding of 3M except for the medical mistakes the court made, which you have got to look at on the three evidence and there is all the evidence the court did not look at.

And 27 out of 35, he said dealt, well, and he said eight did not deal, and even that is wrong, it was nine that refused to deal, not eight.

And when you compare the publishers who refused to deal, the nine, who by ASCAP’s credit system account for 40% of CBS users and I say ASCAP’s credit system, you can evaluate music in terms of equal numbers of compositions because some music is more liable than other music and the credit system of ASCAP does that, so that is probably the best way we have right now of evaluating uses the nine who refused to deal supply 40% of CBS’s uses.

Alan J. Hruska:

The 27 or 26, whatever the number was, who did deal are at the minimis percentage, the total of them was 3.5%.

When you take out three of them, which I will comeback to in a moment, you get down to less than 1%.

The three big ones who dealt were Jewel Music and the president of Jewel Music testified in this case and he said he would not do it again, he made a bad mistake, this is in out addendum A, he said that what ASCAP is licensing a category of users, he believes that music publishing corporation should not, this was Jewel Music.

And then we had two other big publishers, Shapiro Bernstein and MCA.

The president of the MCA almost lost his job over this sort of thing.

It was so embarrassing that the attorney for 3M had offered a contract and the publisher who was the head of Shapiro Bernstein, who licensed said that the comparison between licensing this in this trivial way, which was sound money an absolute windfall, and from his standpoint, he expected to get as much as $500,000 from the licensing and licensing a television network where that was grains compared to watermelons.

He made a speech at the ASCAP Board which said, you know, if we license these people 3M and get this thing off the ground, they are going to have to comeback to ASCAP anyway, that is how he justified.

I did not really want to hang up on the —

John Paul Stevens:

You are in sort of digression on — let me just ask you this.

In the motion picture market and in the sync rate market, where I understand there is per-use transactions take place.

Alan J. Hruska:

Yes.

John Paul Stevens:

Are there also blanket license offered in those markets?

Alan J. Hruska:

I do not believe so Mr. Justice Stevens, no.

And the sync right and performance right is licensed in one transaction and the license use at a time, that is a sensible way to license music.

I think in the short time I have remaining, I would like to jump to the rule of reason point and mainly to make the point that the Court of Appeals really decided this case on rule of reason grounds as well as per se grounds, that is not the label that the court used, but that is obviously what it did and in addition to holding this former price fixing to be per se illegal.

The Court of Appeals looked to see whether this price fixing was necessary for any market functioning purpose and found that it was not.

The Court of Appeals looked to see whether the system created a disinclination to compete and found that it did inevitability.

The Court of Appeals looked to see whether there was a less restrictive alternative and found that there was, the per-use system.

And all of these were rule of reason determinations.

And this was obviously the basis of judge Morris concurrence, which defendants suggest was irrational.

Moreover, there is nothing of cognizable economic value that this unnecessarily restrictive system can be said to provide that would not be better provided by a competitive market.

All we have really heard and it is not really a rule of reason consideration is that CBS is too big, to be permitted to deal one-on-one with Aarom Copland or George Gershwin or the write of several songs, but CBS will not be dealing with Aarom Copland even to the limited extend CBS is producing its own programs.

The independent packagers will be dealing with them as they now deal with authors and actors and scenery designers and set designers and everybody else, who supplies elements for television program except ASCAP supplied music.

And as I said before, the people who write music for television get between a $1,000 and $ 2,500 a week, so there is plenty of those people who have adequate bargaining card.

I guess the last point I want to turn to is defendant’s expressed concern in their brief for troubled damage liability if this judgment is affirmed, that to obviously is something to do with the rule of reason determination, but it should be — but I think also it has not very little to do with this lawsuit.

CBS has not saw damages in this case, troubled or otherwise.

The television stations are recently sued in New York and they have not saw damages either.

And if any group of users sue and if they do seek damages and this Court believes for any reason that these music publishing corporation should not pay damages, this Court has the inherent powers to decide.

So this case will not decide the question of whether music publishing corporations must pay damages, what it should decide I submit is that price fixing is unlawful whether committed or something as beloved as a popular tune or on any other right commodity or service.

Warren E. Burger:

You are not suggesting that a court has discretion to decide in a suit for damages, a legitimate suit for damages, whether the damages in an antitrust case should be triple or double or single?

Alan J. Hruska:

I am suggesting that the court has discretion not to award damages under the law, even though there is liability, any damages.

Warren E. Burger:

Yeah.

Alan J. Hruska:

Exactly, yes Your Honor, I am suggesting.

Potter Stewart:

But it has no discretion, if it awards damages to say well, in this case, it will be single damages or double damages or one-and-half times or one-and-three times or just actually damages, does it?

That was suggested in City of Lafayette, I think?

Alan J. Hruska:

Well, I think it is nice question and —

Potter Stewart:

Yeah, if there is a pretty —

Alan J. Hruska:

Well, you can argue it both ways and I —

Potter Stewart:

It was.

Alan J. Hruska:

It just never been decided and if I had to run a brief on that, I would say, if you are going to award damages, there are going to trouble under the statute.

Warren E. Burger:

Congress gave some thought to that, did not they?

Alan J. Hruska:

Well, it apparently did.

Byron R. White:

In fact Mr. Hruska, if you find an injury to the business or property of the plaintiff, then you ask for damages, where does the judge get discretion to say no?

Alan J. Hruska:

From the sense in all case in which this Court stated exactly that Your Honor.

Byron R. White:

But that had to do with the retroactivity of new rule, did not it?

Alan J. Hruska:

Yes.

Warren E. Burger:

Mr. Topkis?

Jay H. Topkis:

Mr. Chief Justice of the Court please I attempted to reserve a couple of minutes, I will use no more than that of course.

I think there was a question put about what the situation is today and so I thought I would perhaps bring the Court up-to-date on that.

The fact is that today, the Columbia Television System Network holds no license whatsoever from ASCAP in order so far as I am aware from any ASCAP member.

It canceled the license it held with us many months ago, shortly after the Second Circuit came down with its decision.

It has been playing the ASCAP music constantly ever since that cancellation.

It has paid neither ASCAP nor anybody else one dime for the exploitation of copyrights in which it has engaged and it has merrily told us that if we bring a suite for infringement on behalf of any our members, it will defend what they claim that we have misused our copyrights and so it is immune against any claim for infringement we are not privileged to enforce our copyrights.

That is where matters stand today.

Byron R. White:

Saying with BMI?

Jay H. Topkis:

So far, I would not attempt to speak for BMI Your Honor, I am not sure of the fact there.

Now, that causes me to plead with perhaps special vigor for this Court if it agrees with us that there has been no per se violation of law, not to remand this eight year-old case for further enquiry or further trial or further anything else, but since the District Court found that CBS had failed totally in every assertion of fact that it made, we submit that the proper course is to end matters here and in effect to serve notice on the world that antitrust litigation really is not and will not be tolerated by this Court to be endless.

I ask the Court to remind the parties here that it can sometimes make sense to negotiate rather than litigate.

We have been standing ready to do so for years, we still are, we would welcome the opportunity.

Potter Stewart:

Mr. Topkis.

Jay H. Topkis:

Mr. Justice.

Potter Stewart:

Your opponent about the motion picture market and the sync right market, and he said there were no blanket licenses in those markets.

And I guess is that correct as a matter of fact and if so, I wonder why not if they have the economic utility?

Jay H. Topkis:

Well, Your Honor I take it means a film company asking for a blanket license from ASCAP.

Potter Stewart:

And the sync right market also applies to television network.

Jay H. Topkis:

The sync rights apply to television.

Potter Stewart:

The television sync rights then.

Jay H. Topkis:

Right.

Well, sync rights are negotiated individually in dealings between the producer of a show for television and a copyright proprietor when a producer discovers that he needs a song, he calls up usually through the Harry Fox Agency and gets a quote on the sync rate.

Those transactions are relatively rare Your Honor.

A few hundred years is the totality of them and I think that probably explains why there are no blanket licenses as well.

Potter Stewart:

Because they are so infrequent?

Jay H. Topkis:

Yeah, there is one lady in New York who handles the whole thing and —

Potter Stewart:

But it is correct, there are no blanket licensees in that market, or in the motion picture market?

Jay H. Topkis:

There are no blanket licenses.

Certainly not in motion picture market.

Potter Stewart:

Thus would you give the same answers to the reason for no blanket license in the motion picture market that they are so rare, do you think they are used rarely for the movies?

Jay H. Topkis:

Well in the motion picture field Your Honor, we are enjoying under the amended final judgment from granting licenses for many — in anyway dealing in licenses for performance rights.

ASCAP is not in that business, so we could not issue a blanket license.

Potter Stewart:

Is BMI also enjoined?

Jay H. Topkis:

I do not know again, I leave to Mr. Kearse to acquaint Your Honor with the facts there.

Thank you very much.

Warren E. Burger:

Thank you counsel.

Case is submitted.