Law School Case Brief
Broad. Music, Inc. v. Columbia Broad. Sys., Inc. - 441 U.S. 1, 99 S. Ct. 1551 (1979)
In construing and applying the Sherman Act's ban against contracts, conspiracies, and combinations in restraint of trade, certain agreements or practices are so plainly anticompetitive, and so often lack any redeeming virtue, that they are conclusively presumed illegal without further examination under the rule of reason generally applied in Sherman Act cases. This per se rule is a valid and useful tool of antitrust policy and enforcement. And agreements among competitors to fix prices on their individual goods or services are among those concerted activities held to be within the per se category. When two partners set the price of their goods or services they are literally price fixing, but they are not per se in violation of the Sherman Act.
Respondent Columbia Broadcasting System, Inc. (CBS) operates one of three national commercial television networks, supplying programs to approximately 200 affiliated stations and telecasting approximately 7,500 network programs per year. Many, but not all, of these programs make use of copyrighted music recorded on the soundtrack. Since 1897, the copyright laws have vested in the owner of a copyrighted musical composition the exclusive right to perform the work publicly for profit, but the legal right is not self-enforcing.
Petitioners American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) were organized as ”clearinghouses" for copyright owners and users to solve problems" associated with the licensing of music, to make possible and to facilitate dealings between copyright owners and those who desire to use their music. Both organizations operate primarily through blanket licenses, which give the licensees the right to perform any and all of the compositions owned by the members or affiliates as often as the licensees desire for a stated term. Fees for blanket licenses are ordinarily a percentage of total revenues or a flat dollar amount, and do not directly depend on the amount or type of music used. Radio and television broadcasters are the largest users of music, and almost all of them hold blanket licenses from both ASCAP and BMI.
The complaint filed by respondent CBS charged petitioners ASCAP and BMI of violations of the Sherman Act and the copyright laws. CBS argued that ASCAP and BMI are unlawful monopolies and that the blanket license is illegal price fixing, an unlawful tying arrangement, a concerted refusal to deal, and a misuse of copyrights. The District Court dismissed the complaint and rejected the claim that the blanket licenses constituted price fixing that was a per se violation of the Sherman Act. It held that since direct negotiation with individual copyright owners was available and feasible there was no undue restraint of trade, illegal tying, misuse of copyrights, or monopolization. On appeal, the United States Court of Appeals for the Second Circuit reversed and remanded for consideration of an appropriate remedy, holding that the blanket licenses issued to television networks constituted a form of price fixing illegal per se under the Sherman Act, the determination as to price fixing settling the issue of liability under the Act and establishing copyright misuse. ASCAP and BMI petitioned for certiorari, presenting the questions of the applicability of the per se rule and of whether this constituted misuse of copyrights. The Supreme Court of the United States granted certiorari because of the importance of the issues to the antitrust and copyright laws.
In an antitrust and copyright action by a television network, was the issuance of blanket licenses by "clearinghouses" for the television network's use of copyrighted musical compositions per se illegal price fixing under the Sherman Act?
The Supreme Court of the United States reversed the judgment and remanded the cause for an assessment of the license under the rule of reason. The Court concluded that the system of blanket licensing for the use of copyrighted musical compositions did not constitute a type of price fixing that was per se violative of the Sherman Act.
In determining whether the system of blanket licensing violated the Sherman Act, the appropriate standard of examination was that of the rule of reason generally applied in Sherman Act cases - such standard of analysis being one for the Court of Appeals to utilize on remand if the issue of blanket licenses as employed in the television industry had been preserved in the Court of Appeals. It is only after considerable experience with certain business relationships that courts classify them as per se violations of the Sherman Act. Though there has been rather intensive antitrust scrutiny of ASCAP and BMI and their blanket licenses, that experience hardly counsels that the Court should outlaw the blanket license as a per se restraint of trade. Congress, in the Copyright Act of 1976, chose to employ the blanket license and similar practices. Thus, there is no nearly universal view that the blanket licenses are a form of price fixing subject to automatic condemnation under the Sherman Act, rather than to a careful assessment under the rule of reason generally applied in Sherman Act cases.
The blanket license is not a "naked [restraint] of trade with no purpose except stifling of competition," but rather accompanies the integration of sales, monitoring, and enforcement against unauthorized copyright use. Although the blanket license fee is set by ASCAP and BMI rather than by competition among individual copyright owners, and although it is a fee for the use of any of the compositions covered by the license, the license cannot be wholly equated with a simple horizontal arrangement among competitors and is different from anything any individual owner could issue. Accordingly, the Court of Appeals' judgment holding that the licensing practices of ASCAP and BMI are per se violations of the Sherman Act, and the copyright misuse judgment dependent thereon, was reversed by the Court, which remanded for further proceedings to consider any unresolved issues that CBS may have properly brought to the Court of Appeals, including an assessment under the rule of reason of the blanket license as employed in the television industry.
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