NOV 8 10 18 am '96
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
TIME WARNER, INC., et al.,
| Misc. Action No. 94-338 HHG
POST-HEARINC MEMORANDUM BY THE UNITED STATES
The United States submits this memorandum to clarify an issue as to
which there may have been some misunderstanding at the hearing held
in this matter on October 31, 1996. At that hearing, counsel for the
respondents conceded that the Justice Department is entitled to use
Civil Investigative Demands ("CIDs") to obtain documents and other information
regarding conduct outside the United States if it has reason to believe
that that conduct, by itself or together with conduct in the United
States, might have a direct, substantial and foreseeable effect on U.S.
purchasers or exporters. See also Mem. of P.& A. of Polygram
Opp'n to Pet. to Enforce CID at 5; Time Warner, Sony, Bertelsmann Mem.
in Opp'n to Pet. to Enforce CIDs at 12. Counsel went on to argue, however,
that the Justice Department is not investigating conduct that might
have such an effect.
To the contrary, the briefs filed in this case make clear that the
Department does have reason to believe that the overseas conduct of
the respondents with which the outstanding CIDs are concerned has had
and is continuing to have significant anticompetitive effects on U.S.
commerce. United States Mem. of P.& A. in Supp. of Pet. to Enforce
CID ("Opening Brief") at 4-11 (identifying exporters and their exports)
and 33-37 (describing potential effects on exports). That conduct appears
to have increased the price paid by U.S. purchasers and, by increasing
their costs, impaired their ability to export from the United States.
Respondents are the five major record companies both in this country
and throughout the world. id. at 4-5. Together, they supply more than
80 percent of the world's music videos, which they license to music
programmers, like MTV, in the United States and elsewhere. Id. These
programmers, in turn, produce programming for distribution both in this
country and in foreign countries. Id. at 5-11.
In the last few years, respondents have entered into various joint
efforts throughout the world that may injure U.S. export and domestic
commerce as follows:
- The majors have formed performance rights societies in Europe and elsewhere
through which they pool or combine the performance rights to use their
videos outside the United States and offer programmers, including United
States programmers that export their services, only an all-or-nothing
collective blanket license. Opening Brief at 13-16. The formation of
these societies may have been targeted at U.S. firms. Id. at 14 n.4.
Programmers are required to obtain a collective blanket license from
the performance rights societies in order to use the majors' videos
in their programming, including programming produced in this country
that is distributed outside the U.S. Id. at 13-14. By requiring U.S.
programmers to take a single blanket license from all the record companies
instead of negotiating separately with individual companies, respondents
appear jointly and substantially to have increased the prices charged
to these programmers for essential inputs into their music programming
services. id. These collaborative price increases by respondents may
have increased the costs of U.S. music programmers and handicapped and
curtailed exports of U.S.-based music programming services and original
(i.e., non-music video) programming. Id. at 15, 36-37.
- The majors have also joined together to form downstream programming
services in Europe and Asia (and planned to do so in the U.S.). Opening
Brief at 16-18. These jointly-owned, affiliated programming services
compete with unaffiliated programmers, most of which are U.S.-based.
Id. Respondents may have agreed to boycott these U.S.-based competitors
of their joint ventures, thereby denying them access to music videos
and reducing the amount of music video programming they are able to
export from the U.S. Opening Brief at 3 6-37; United States Reply in
Supp. of Pet. to Enforce CIDs ("Reply Brief") at 5-6 and Exhibit 1F.
The collaboration of respondents in forming the programming services,
including their planned venture in the U.S., may also have been the
occasion for unlawful price-fixing agreements among them, and/or may
have unlawfully facilitated tacit collusion among them, to the detriment
of U.S. purchasers. Reply Brief at 5.
- In the past, respondents required music programmers to take country-by-country
licenses, usually from their collectively controlled performance rights
societies, and may have agreed not to provide worldwide licenses to
U.S. programmers. Opening Brief at 33. Now, some respondents have separately
granted a single license to cover performance rights worldwide, including
in the U.S. The price of these worldwide licenses may have been set
at a higher than competitive level and may be, directly or indirectly,
artificially elevated by the majors' joint activities abroad, by their
planned joint venture in the United States, or by other possible collusion.
United States Mem. in Supp. of Mot. to Set Hr'g Date ("Hr'g Date Brief")
at 5-7. This would increase the cost of music video performance rights
to programmers, including programmers in the United States, and harm
U.S. purchasers and exporters. Opening Brief at 33; Reply Brief at 3
and Exhibit 1B; Hr'g Date Brief at 5-7.
- Respondents have formed a performance rights society in Europe that
collectively licenses broadcasting rights to digital radio programmers,
including U.S. exporters of such programming, and have also formed or
joined digital radio programming joint ventures, both here and abroad,
that compete directly with unaffiliated radio programmers. Opening Brief
at 13-17. These collaborative activities may have raised the price of
foreign and domestic broadcasting rights charged to U.S. digital radio
programmers, harming U.S. purchasers and reducing U.S. exports of digital
radio programming. Id. at 16-18.
All of this conduct may have direct, substantial, and reasonably
foreseeable effects on U.S. domestic and export commerce.
Robert P. Faulkner (4 30163)
U.S. Department of Justice
325 7th St., N.W., Ste. 300
Washington, D.C. 20530
Telephone: (202) 514-0259
CERTIFICATE OF SERVICE
I certify that I have this day November 8, 1996, caused to be served,
by overnight delivery service, a copy of the foregoing Post-Hearing
Memorandum on counsel of record for Time Warner, Inc., Sony Corporation
of America, PolyGram Holding, Inc., EMI Music Inc. and Bertelsmann,
Inc. at the addresses below:
Time Warner, Inc.
Stuart Robinowitz, Esquire
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Time Warner, Inc.
Robert D. Joffe, Esquire
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10 019
Sony Corporation of America
James Calder, Esquire
Rosenman & Colin
575 Madison Avenue
New York, NY 10022
PolyGram Holding, Inc.
Steven A. Marenberg, Esquire
Irell & Manella
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067-4276
EMI MUSIC INC.
William S. D'Amico, Esquire
Chadbourne & Parke
1101 Vermont Avenue, N.W.
Washington, D.C. 2 0005
Robert E. Bloch, Esquire
Mayer, Brown & Platt
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-1882
| Robert P. Faulkner