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UNITED STATES v. AMERICAN SOCY. OF COMPOSERS

January 3, 1995

UNITED STATES OF AMERICA, Plaintiff, - against - AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, et al., Defendants. In the Matter of the Applications of FOX BROADCASTING COMPANY and FOX TELEVISION STATIONS, INC., Applicants.

William C. Conner, United States District Judge


The opinion of the court was delivered by: WILLIAM C. CONNER

CONNER, D.J.

 This application is before this Court in its capacity as the "rate court" under the Amended Consent Judgment ("Consent Decree") entered in United States v. American Society of Composers, Authors and Publishers, 1950-51 Trade Cases (CCH) P 62,595 (S.D.N.Y. 1950). The Consent Decree, originally entered in 1941 and extensively amended in 1950, settled the United States' antitrust suit against the American Society of Composers, Authors and Publishers ("ASCAP"). This Court has retained jurisdiction under Article XVII of the Consent Decree to oversee its ongoing implementation. Article IX of the Consent Decree provides that if ASCAP and a user of music in its repertory are unable to agree on a fee for the right to perform ASCAP music, the music user may apply to this Court for "the determination of a reasonable fee." We may, of course, also determine the threshold matter of whether ASCAP is entitled to any fee from a particular user.

 ASCAP is an unincorporated membership society of over 50,000 music composers, lyricists and publishers who own the copyrights to more than three million musical compositions. Each member has granted ASCAP a non-exclusive right to license the public performance rights to his or her compositions. ASCAP serves as licensing agent and as a collector and distributor of royalties. It licenses performances by a wide variety of music users, including television and radio networks and stations, cable program services, restaurants, clubs, and bars. ASCAP surveys tens of thousands of hours of television and radio broadcasts each year in an attempt to monitor the public performances of its members' music and to ensure that those performances are licensed.

 The applicants in this proceeding are Fox Broadcasting Company ("Fox"), a corporation that acquires and distributes television programming by satellite transmission to the approximately 134 television stations with which it has contractual relationships (the "Fox affiliates"), and Fox Television Stations, Inc., a corporation that owns and operates eight television stations (the "O&Os"). The O&Os and the Fox affiliates operate in the same way: they broadcast some programming supplied by Fox and fill up the rest of the broadcast day with syndicated programming, which is produced and distributed by independent companies, and with locally-produced programming. For the purposes of this opinion, the affiliated stations and the O&Os are similarly situated and we will not distinguish between them. All references to the "Fox affiliates" or the "Fox stations" should be understood to include the eight O&Os.

 Fox seeks a determination that it is not required to obtain a license from ASCAP for the satellite transmission of its programs to its affiliates and O&Os. In the alternative, if we determine that it must obtain a license from ASCAP, Fox asks this Court to set a reasonable fee for its music use. For the reasons set forth below, we hold that ASCAP is not entitled to collect license fees for the use of music in its repertory in Fox programs broadcast between Fox's inception in 1986 and December 31, 1995, and that, even if it were, the reasonable amount of that fee would be $ 0. Beginning in 1996, ASCAP may negotiate a license agreement directly with Fox, but it must commensurately reduce the license fees paid by local stations owned by Fox or contractually affiliated with Fox.

 BACKGROUND

 A. The Consent Decree

 Because ASCAP pools its members' copyrights, thereby enhancing their bargaining power in negotiations with music users, the United States Department of Justice filed suit in 1941 against ASCAP for alleged antitrust violations. The suit was quickly settled by the entry of the Consent Decree, which imposed certain limitations on ASCAP's operation. See United States v. American Society of Composers, Authors and Publishers, 1940-43 Trade Cases (CCH) P 56,104 (S.D.N.Y. 1941). The Decree was amended in 1950, in part as a response to the development of television and the corresponding increase in music use on television programming. See United States v. American Society of Composers, Authors and Publishers, 1950-51 Trade Cases (CCH) P 62,595 (S.D.N.Y. 1950); United States v. American Society of Composers, Authors and Publishers/Application of Turner Broadcasting System, Inc., 782 F. Supp. 778, 791 (S.D.N.Y. 1991) ("Turner Broadcasting"), aff'd, 956 F.2d 21 (2d Cir.), cert. denied, 118 L. Ed. 2d 554, 112 S. Ct. 1950 (1992).

 In broad terms, the Consent Decree permits ASCAP to hold only a non-exclusive right to license public performances. The members retain the right to negotiate with music users directly--so-called "source" or "direct" licensing--or to assign that role to another entity. The Consent Decree requires ASCAP to offer both blanket and per-program licenses. A blanket license grants the licensee the right to use any composition in ASCAP's repertory at any time and as many times as the user wishes during the term of the license. See Art. VI, Consent Decree. A per-program license grants the licensee the right to perform any of ASCAP's compositions as many times as the user wishes, but the user pays license fees only for those programs in which it actually uses ASCAP music. See Art. VII(B), Consent Decree.

 Specifically with respect to television broadcasting, the Consent Decree directs ASCAP to issue to a "telecasting network," a term that is not defined in the Consent Decree, a license

 
on terms which authorize the simultaneous and so-called "delayed" performance by . . . telecasting . . . of the ASCAP repertory by any, some or all of the stations in the United States affiliated with such . . . television network . . . and do not require a separate license for each station . . . for such performance.

 See Art. V(A), Consent Decree. This license is referred to as a "through-to-the-viewer" license. Under this provision, each network negotiates a license fee for the use of music in the programs that are broadcast through its affiliates and O&Os. That license covers both the delivery of the programs to the network stations and the broadcast of the programs to the viewing public. Radio broadcast networks and music services like Muzak are licensed in the same way, while most other music users negotiate blanket (or more rarely per-program) licenses to cover the ASCAP music that they provide directly to the public.

 If ASCAP and a music user are unable to agree on a license fee, Article IX (A) of the Consent Decree provides that the music user may apply to this Court for the determination of a reasonable fee. While that proceeding is pending, either party may request that the Court set an interim license fee. The music user must pay that fee, subject to later adjustment once the final fee has been set. If the music user does not pay the interim fee, its application may be dismissed. See Art. IX(B), Consent Decree.

 The Consent Decree also contains an anti-discrimination provision that prohibits ASCAP from "entering into, recognizing, enforcing or claiming any rights under any license for rights of public performance which discriminates in license fees or other terms and conditions between licenses similarly situated." See Art. IV(C), Consent Decree.

 B. Prior Licenses to the Television Broadcasting Industry

 The history of ASCAP's negotiations with the television broadcasting industry is extensive. Since 1949, ASCAP has licensed both the networks and the approximately 1000 local television stations. Until recently, it was generally agreed that there were three networks respectively owned by National Broadcasting Company ("NBC"), Capital Cities/ABC, Inc. ("ABC"), and CBS Inc. ("CBS"). Each network negotiates through-to-the-viewer licenses for the programming that it provides to its O&Os and affiliated stations. The local television stations, each broadcasting within a limited geographical area, fall into three categories: network affiliated stations, O&Os, and independent stations. Both O&Os and network affiliated stations carry some network programming, which is covered by the network's license. The remainder of their broadcast day consists of syndicated programming and locally-produced programming. Independent stations carry only syndicated and local programming. The local stations pay ASCAP license fees only for the portion of their programming that is not received from the networks.

 1. ABC, NBC and CBS

 Although ASCAP has entered into various blanket licensing agreements with ABC, CBS and NBC on a through-to-the-viewer basis since 1949, its relationship with the networks has frequently been contentious. Throughout the 1970s and 1980s, for example, the networks operated under interim fee agreements for long periods before either reaching a negotiated settlement retrospectively finalizing fees--as NBC did in 1992 for the period from 1976 to 1991--or having their fee disputes resolved by this court--as was the case for CBS for the period 1991 to 1993 and for ABC for the period 1986 to 1993. See United States v. American Society of Composers, Authors and Publishers/Applications of Capital Cities/ABC, Inc. and CBS Inc., 831 F. Supp. 137, 143 (S.D.N.Y. 1993). After the retrospective final fee was set, the amount that the networks had paid in interim fees was adjusted to reflect any disparity between the final fee and the interim fee.

 2. The Local Stations

 The negotiating history of the local stations is also complex. Historically, ASCAP has licensed the local stations, almost without exception, as a group. The stations then apportioned the total blanket license fee among themselves. Although all of the local stations pay per-program fees according to the same formula, the amount that each station pays reflects the music use in each individual station's programming. The All-Industry Television Station Music License Committee (the "Committee") has long represented the local stations in negotiations with ASCAP.

 In 1949, ASCAP and the local stations agreed on a blanket license, modeled on an already-existing radio license, that called for a fee based upon a set percentage of the stations' combined gross revenues. Although the local stations were also interested in per-program licenses, they were unable to reach agreement with ASCAP and, in July 1951, brought a rate proceeding in this Court. See United States v. American Society of Composers, Authors and Publishers/Application of Voice of Alabama, Inc., 11 F.R.D. 511 (S.D.N.Y. 1951). Before any opinion issued, however, the parties agreed on a new set of licenses. These licenses (the "Voice of Alabama licenses") began in 1954, terminated in 1961, and provided for a blanket license fee based on a percentage of the station's revenues and a per-program license fee based on a percentage of the net revenues of programs using ASCAP music.

 By late 1960, saddled with increasing license fees because of rising station revenues, the local stations applied to the rate court once again. In United States v. American Society of Composers, Authors and Publishers/Application of Shenandoah Valley Broadcasting, Inc., No. Civ. 13-95 (S.D.N.Y. 1961), they sought to compel ASCAP to offer a license that would exclude pre-recorded syndicated programming from its coverage. This Court denied the stations' request, and the stations thereafter filed a second application for the determination of reasonable blanket and per-program license fees. In 1969, prior to adjudication, the parties agreed on a new set of blanket and per-program licenses (the "Shenandoah license"), *fn1" based on a different percentage of revenue formula. As compared with the Voice of Alabama license, the Shenandoah license was expected to save the stations about $ 53 million over its ten-year life. See United States v. American Society of Composers, Authors and Publishers/Application of Buffalo Broadcasting Co., et al., 1993 U.S. Dist. LEXIS 2566, No. Civ. 13-95, 1993 W.L. 60687, at *50 (S.D.N.Y. Mar. 1, 1993) (Dolinger, Mag. J.) ("Buffalo Broadcasting I"). The Shenandoah license ran from 1968 through 1977.

 Following the termination of the Shenandoah license in 1977, the local television stations again sought to decrease their license fees. *fn2" The parties agreed to extend the Shenandoah license through mid-1978, after which the local stations filed an unsuccessful antitrust challenge to ASCAP's use of the blanket license. See Buffalo Broadcasting Co. v. ASCAP, 546 F. Supp. 274 (S.D.N.Y. 1982), rev'd, 744 F.2d 917 (2d Cir. 1984), cert. denied, 496 U.S. 1211, 105 S. Ct. 1181, 84 L. Ed. 2d 329 (1985). While that suit was pending, the parties agreed to various extensions of the Shenandoah license; its terms remained in effect through January 31, 1983. In 1984, approximately 960 local stations filed an application for the determination of reasonable blanket license fees for the period from February 1, 1983 through December 31, 1995 and reasonable per-program license fees for the period from April 1, 1985 through December 31, 1995. See Buffalo Broadcasting I, at *3 With the consent of the parties, we referred that application to Magistrate Judge Dolinger to sit as a district judge pursuant to 28 U.S.C. § 636 (c).

 The O&Os' bargaining and litigating history with ASCAP is somewhat different from that of the independent and network-affiliated local stations. In 1964 or 1965, the O&Os agreed to a fee formula similar to the fee paid by the other local stations, but based on slightly different revenue percentages. Thereafter, the O&Os allowed the Committee to take the lead in negotiations with ASCAP. For the period ending on December 31, 1977, the O&Os ultimately chose to agree to the Shenandoah formula applicable to the other local stations. After 1977, however, the O&Os reached no agreement with ASCAP. In 1987, NBC, ABC and CBS filed an application on behalf of their twenty O&Os seeking the determination of reasonable blanket license fees for the period from January 1, 1978 through December 31, 1995 and reasonable per-program license fees for the period from April 1, 1985 through December 31, 1995. See Buffalo ...


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