Broadcast Music, Inc.
v.
Claire's Boutiques, Inc.

949 F.2d 1482

United States Court of Appeals,
Seventh Circuit

Dec. 11, 1991

 

CUMMINGS, J.: When must the corporate owner of a chain of retail stores pay copyright license fees for playing radio broadcasts in its stores? Plaintiffs Broadcast Music, Incorporated ("BMI") and various named song publishers sued defendant Claire's Boutiques, Incorporated ("Claire's") for violating copyrights in certain musical compositions. The plaintiff publishers own the copyrights in the compositions at issue but grant to BMI the right to license public performances of these compositions. Claire's, which owns and operates a chain of over 700 retail stores, defended BMI's allegations in the district court by claiming shelter in ' 110(5) of the Copyright Act. Section 110(5) exempts under certain circumstances persons who play their radio or television in a public place if received by a single receiving apparatus of a kind commonly used in private homes. Both parties moved for summary judgment. The district court granted Claire's motion, and BMI appealed.

I. FACTS

Pursuant to the district court's request, the parties stipulated to the following facts for the purposes of their summary judgment motions.

A. The Parties

BMI is a non-profit performing rights organization expressly recognized by the Copyright Act. See 17 U.S.C. ' 116(e)(3). Individual publishers grant to BMI a non-exclusive right to license public performance rights in their musical compositions. Besides BMI, the plaintiffs in this case own the copyrights to 88 musical compositions that are the subject of this action.

Claire's owns and operates 719 stores under the name Claire's Boutiques and 30 stores under the name Arcadia. These retail establishments are located throughout the United States and are open to the public during normal business hours. Claire's stores range in size from 458 square feet to 2000 square feet. The average size of a Claire's Boutique store is 861 square feet, and 628 of the Boutique stores are less than 1055 square feet. The average size of each Arcadia store is 2022 square feet, and 27 out of the 30 Arcadia stores are greater than 1055 square feet.

During fiscal year 1990, Claire's had net sales of $168,674,000 and earned $13,402,000 in net income. The Claire's Boutiques stores accounted for the majority of these sales ($165,767,233).

B. Claire's Sound System

Claire's has a policy to provide the following stereo components to each of its stores: a Radio Shack Optimus STA-20 5-watt stereo receiver, two Realistic Minimus 7 speakers, an indoor antenna, and speaker wire. As a general rule, Claire's ships a radio receiver to each new Claire's store. General contractors install the speakers and associated wiring pursuant to corporate specifications designed to conceal the wiring as much as possible. Stereo receivers are a stock item furnished to each store as a matter of course based on a supply requisition form. When a receiver breaks, the store manager simply orders a replacement receiver from the corporate purchasing manager. In the three and a half year period from 1987 to July 1990, Claire's purchased at least 527 receivers, 1240 speakers, FM antennas, and speaker wire at a total cost of $108,112.42. Claire's currently owns and operates at least 669 receivers and 1338 speakers.

The individual Claire's Boutiques and Arcadia stores use the receivers provided by corporate headquarters to receive and play radio broadcasts during regular business hours. Prior to their acquisition by Claire's in October 1989, the Arcadia stores subscribed to a commercial background music service. In addition, 24 Claire's Boutiques stores had a trial subscription to a commercial background music service. Claire's ended both its subscriptions because it concluded that its employees preferred listening to the radio.

The receivers are ordinarily kept in a small storage room at the back of Claire's stores. The door between this room and the selling area is typically closed during business hours. Two strands of speaker wire run from the speaker jacks in the back of the receiver to speakers in the store's selling area. Both strands run through a hole in the wall separating the storage room from the selling area. One strand is attached to a speaker that is hung from the ceiling in the rear corner of the selling area. The other strand of wire runs above the dropped ceiling and is connected to the second speaker which is also hung from the ceiling. The first speaker is an average of 5-15 feet from the receiver, and the second speaker is an average of 20-35 feet from the receiver. Both speakers are hidden by a decorative dropped ceiling.

C. The Parties' Dispute

BMI claims that Claire's violates the Copyright Act by playing radio broadcasts in its stores without first obtaining a license from BMI. BMI has offered to provide Claire's with a license at an annual cost of $240 for the first location and $45-$60 for each additional location. One license agreement would cover all of Claire's locations that use receivers to play radio broadcasts. For all the Claire's stores involved in this litigation, the annual BMI licensing fee would be $40,385, an average of $53.92 per store.

Claire's counter-offered to license only its stores that are in excess of 1055 square feet on the condition that BMI not seek to license those Claire's stores with less than 1055 square feet. BMI rejected Claire's counter-offer and commenced this litigation.

The Trial Court Proceedings

. . .  On November 19, 1990, Claire's filed a motion for summary judgment seeking a ruling that it was exempt from liability under ' 110(5). On December 3, 1990, BMI filed a cross-motion for summary judgment on the issue of Claire's liability for copyright infringement. The district court agreed with Claire's that it was exempt under ' 110(5), granted Claire's motion for summary judgment, and dismissed the complaint on December 28, 1990.   . . .

II. ANALYSIS

. . .

The owner of a copyright in a musical work has the exclusive right "to perform the copyrighted work publicly." 17 U.S.C. ' 106(4). One obvious example of a public performance is a live musical concert before a substantial paying audience. A live concert, then, is an infringement unless it is licensed or unless an exemption applies. On the other hand, a rendition of a copyrighted song in the shower is not a public performance and therefore not an infringement, so that there is no need to obtain a license or search for an exemption.  . . .

The technologies of radio and television, which separate the performer from the audience, make it harder to specify what constitutes a public performance. By analogy , a radio station "performs a work publicly" when it sends out radio signals corresponding to that work because, like a live performer, the radio station decides what work is performed and directs that work to a substantial audience. But, more to the point of this case, does a store manager (or corporate owner) perform a work publicly when she merely receives and plays those radio signals for the benefit of her customers?

Under the Copyright Act of 1976, it is clear that the store manager does engage in a public performance.  . . .  Some historical background, however, is necessary for a proper understanding of the "single receiving apparatus" exemption contained in ' 110(5), which also first appeared in 1976. The Supreme Court addressed "public performance" questions in a series of three cases decided under the Copyright Act of 1909. [The court then describes the opinions in Buck v. Jewell-LaSalle Realty Co., Fortnightly Corp. v. United Artists Television, Inc., and Twentieth Century Music Corp. v. Aiken.]

If Aiken's rationale were to apply in our case, the radio playing by Claire's store managers would not be performances and BMI would have no case. Congress, however, rejected Aiken's rationale, if not its result, in the Copyright Act of 1976. The drafters defined "perform" and "perform publicly" broadly in 17 U.S.C. ' 101 . . . .  Under [the 1976 Act] definitions, the restaurant owner in Aiken "performed" the works in question by "playing" them on a "device"--the radio receiver. Furthermore, the performances were "public" because they took place at a restaurant "open to the public." For the same reasons, Claire's, through the actions of its employees, engages in public performances of copyrighted works when it plays the radio during normal business hours.

Even though Congress rejected the Supreme Court's conclusion that the defendant in Aiken had not performed, the legislative history reveals that Congress did not intend to make him liable for copyright infringement. See H.R. Rep. No.94-1476, 94th Cong., 2d Sess. 86, 87 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5701 [hereafter House Report] ("Under the particular fact situation in the Aiken case . . . it is intended that the performances would be exempt under clause (5)"). Section 110(5) of the new act enabled Congress to achieve this result.

. . .

The legislative history reveals several reasons why Congress passed the ' 110(5) exemption. Congress thought it unfair to impose liability on unsuspecting small business persons. Congress believed also that it was impractical to require small organizations to enter into licensing agreements with performing rights organizations. The secondary use of radio broadcasts in small establishments, Congress also recognized, would have only a minimal effect on authors' incentives to create new works.

On the face of the statute, the exemption is available only if (1) a single receiving apparatus is used, (2) the single receiving apparatus is of a kind commonly used in private homes, (3) the transmission is provided free of charge, and (4) the transmission is not "further transmitted" to the public. The parties agree that Claire's does not charge for the privilege of listening to the radio broadcasts in its stores. The parties contest, however, the applicability of the other three elements required by ' 110(5). They also disagree on the proper meaning and relevance of the legislative history.

BMI argues first that the district court erred in considering Claire's operations on a store-by-store basis. BMI contends that Claire's actions must be considered as a whole. When viewed in this light, according to BMI, Claire's must be found liable for copyright infringement because it operates at least 669 receivers, not a "single receiving apparatus" as required by ' 110(5). BMI also claims that Claire's cannot be exempt from copyright infringement because, when viewed as a whole, it fails the so-called "small business" and "background music service" tests. Finally, BMI claims that, even if Claire's operations are viewed on a store-by-store basis, Claire's cannot claim the ' 110(5) exemption because its receiving apparatus is not of a type commonly used in private homes and also because the transmission received is further transmitted into a separate room. We address these contentions in turn.

The "Single Receiving Apparatus " Issue

Section 110(5) does not discuss how to treat chain stores such as Claire's. BMI contends that Claire's cannot claim that it uses a "single receiving apparatus" for the simple reason that, on a corporate-wide basis, it uses 669 receivers. Claire's counters that its activities must be viewed on a store-by-store basis and that it is stipulated that only one receiver is used in each store.

. . .

Congress did not address, in either the statute or any legislative history , the precise issue of whether all the receivers of a commonly owned organization are to be counted for the purposes of ' 110(5), or only those receivers in a particular location. Section 110 provides exemptions to "infringements of copyright," with no reference to whether corporate actions that infringe a copyright are to be considered as a whole. Some subsections refer specifically to individuals, whereas other subsections refer specifically to groups. Subsection (5), on the other hand, does not contain a description of what types of individuals or groups are entitled to freedom from copyright liability. This omission presumably implies that anyone could benefit from the exemption.  . . .

In one sense, it seems more appropriate to consider Claire's as the infringer as opposed to its individual store managers. Claire's instituted and has carried out a policy of playing radio music without a license in its public stores. Its store managers, although they may have the discretion to choose which station to play, are merely following corporate policy when they switch on the receivers in their stores. The legal fiction of corporate personhood was developed precisely for this type of case.

That Claire's is the potential infringer does not mean, however --that all its receivers must be counted together for the purposes of ' 110(5). The language of the statute speaks of one performance of one work, describes the type of receiving apparatus that may be used, and disallows an admission charge or further transmission. The statute asks: under what circumstances was the radio used to perform this one work? Was one receiving apparatus used, was a charge made, was the work further transmitted? The statute does not ask how many receiving apparatuses were used to receive a number of different works. The language of the statute thus strongly suggests that the proper analysis should be limited to the area where a single work is performed. This case would be different if Claire's itself initiated the broadcast of an identical work to each of its 669 stores. Then Claire's would be more like a radio station owner or broadcaster. It would also be a different case if Claire's told its managers to tune to a particular station--Claire's would in that case also have some indicia of a broadcaster. In this case, however, the individual store managers simply tune the receivers to the station of their choice. By using the phrase "single receiving apparatus," Congress simply wanted to foreclose the unlicensed playing of more than one receiver at a single geographic site.

An examination of the history and policy behind the ' 110(5) exemption bolsters our conclusion that the exemption in this case was properly limited to each individual store. The problem addressed by this exemption is where to draw the line between uses of copyrighted works that should be considered infringements and uses that should not be considered infringements. Although Congress broadly defined "public performances" in the Copyright Act of 1976, it was aware that some performances were more public than others. Those performances that are less public are those where the "secondary use . . . is so remote and minimal that no further liability should be imposed." House Report at 86, 1976 U.S.C.C.A.N. at 5700. Congress decided that the way to judge the benefit to the otherwise infringing person (assuming that no charge was made) was to focus on the type of receiver used--was there a "commercial sound system?" Since a sound system exists in only one geographical area, our analysis is likewise limited. When viewed one store at a time, it is clear that Claire's only used a single receiving apparatus. This result is consistent with Congress' intent because, like the defendant in Aiken, each individual store manager receives only minimal benefit from her receiver.

B. The "Small Business" and "Background Music Service" Tests

BMI also relies on the legislative history and several reported cases for the proposition that ' 110(5) cannot apply to a large profitable business such as Claire's. The legislative history refers to the exemption being for "a small commercial establishment . . . not of sufficient size to justify, as a practical matter, a subscription to a commercial background music service . . . ." Conference Report at 75, 1976 U.S.C.C.A.N. at 5816. BMI asserts that the case law interpreting this language sets forth two separate requirements: that Claire's be a "small business" and that Claire's not be of a size and nature that would as a practical matter justify a subscription to a background music service. It is obvious that these two so-called tests collapse into one issue: how does the financial size of the alleged infringer relate to the ' 110(5) exemption?

The legislative history certainly repeats the phrase "small commercial establishment" in several places. What is unclear is whether the word "small" refers to the physical size of an individual storefront or the financial size of the company that owns the storefront. Language in the history regarding the size being insufficient to "justify, as a practical matter, a subscription to a background music service" suggests that financial size is the important consideration. Other parts of the legislative history suggest the opposite: "a small commercial establishment . . . which merely augmented a home-type receiver," id. (suggesting one physical establishment and one receiver); "the clause would exempt small commercial establishments whose proprietors merely bring onto their premises standard radio or television equipment and turn it on," House Report at 87, 1976 U.S.C.C.A.N. at 5701 (same).

Ultimately we need not resolve this issue. As the district court stated, "Congress chose to effectuate [the intent to exempt small commercial establishments] by drawing a distinction based on the type of sound equipment utilized and the nature of the transmission."  . . .  Any rule developed under ' 110(5) based on the financial strength of the company seeking the exemption would be directly contrary to the terms of the statute. The statute speaks only of 1) the number of receiving apparatuses used, 2) whether the sound system is of a type commonly used in private homes, 3) whether music is further transmitted, and 4) whether admission was charged. Legislative history cannot be used to invent rules totally unrelated to the language of the statute. It is appropriate instead for the purpose of clarifying an ambiguous statute or, what is often the same thing, applying the statute to a situation not clearly foreseen by the drafters of the statute.   . . .

It is true that a holding that the financial strength of Claire's is irrelevant contradicts the language of several other cases. These cases, however, typically rely independently on an analysis of the stereo system that the infringer had installed in its store.

In sum, BMI is not entitled to reversal just because Claire's is a large and profitable business. The district court properly held that these considerations, notwithstanding the conclusions of other courts, are not relevant under ' 110(5).

Commonly Used in Private Homes

BMI also contends that, even when considered on a store-by-store basis, Claire's does not use a "receiving apparatus of a kind commonly used in private homes" (a "home-type system"). The district court, after a thorough analysis of a number of different factors, concluded that Claire's used a home-type system in its stores.

The phrase "receiving apparatus" is somewhat unclear and could refer either to the receiver itself or to the entire stereo system, including the receiver, speakers, antenna, and wiring. We conclude that the entire system should be examined for the following reasons. Congress could have, as it does in the legislative history, simply used the word "receiver" if it had wanted to limit the analysis. In addition, "apparatus" is defined as "the totality of means by which a designated function is performed . . . [or] a group of machines used together . . . to accomplish a task." American Heritage Dictionary 120 (2d ed. 1982). A stereo system fits neatly into this definition of apparatus; it uses all its components to perform the task of converting radio waves into audible sound waves.

Because we examine the entire stereo system, there are two ways a company can fall out of the ' 110(5) exemption for failure to use a home-type system. If the company uses any non-home-type components in its stereo system, then the system is not home-type. Analysis does not end, however, if all the components are home-type. The company also may not claim the exemption if it configures and uses home-type components in a manner not commonly found in a home.  . . .

The components in this case are home-type. The receiver is small, measuring approximately 10 inches by 7 inches by 3 inches and delivering only 5 watts of power. Its list price is $129.95, and it is capable of driving only two speakers. Although affidavits from an expert (i.e., someone experienced in the business of selling stereo systems to both homes and businesses) would be helpful in cases such as these, the district court properly concluded that this type of receiver is commonly used in private homes. The speakers used by Claire's are similarly small (7" by 5" by 4") and of limited power. Their list price is $49.95 each, and they are designed either to stand on a table or be mounted on a wall or ceiling. The speaker wire used is 18-gauge and is the type recommended for use in the speaker's manual. The antenna is similarly limited, retailing for only $2.97. When examined individually, all these components are home-type.

The next issue to consider is whether Claire's has configured home-type components in a way not commonly found at home. The district court examined the following factors relating to the system's configuration: number of speakers used, manner in which the speakers are installed, use of concealed wiring, distance of speakers from the receiver, and integration of the stereo system with other technologies. In this case, these factors do not all point in the same direction: the dropped speakers and concealed wiring point toward denying the exemption, whereas the limited number of speakers used (2), the relative closeness of the speakers to the receivers (5-35 feet), and the lack of integration of the system to other technologies point toward allowing the exemption. It is therefore appropriate to evaluate the relative weight to give each factor.

Legislative history is a proper guide in interpreting the somewhat ambiguous notion of a home-type system. In this case, the history reveals that Congress considered the stereo configuration in Aiken to represent the "outer limit" of the exemption. That stereo system consisted of a radio with outlets to four "loudspeakers" in the ceiling. The restaurant in Aiken was of the "fast-food" variety and only accommodated about 40 patrons. Although not mentioned in the legislative history or in the Aiken case at any level, the parties apparently agree that the restaurant in Aiken was 1055 square feet in size, with a serving area of 620 square feet.

Although the legislative history nowhere suggests a hard and fast rule, it is apparent that Congress intended the exemption to apply only to stereo systems that produce music over a limited area. First, the outer limit of Aiken is described as a radio set with four speakers "in a narrow circumference" around it. The history also states several times that the exemption is for "small commercial establishments." As mentioned above, considerations of financial size are irrelevant to our analysis. The physical size of an establishment, however, is relevant as indicative of the reach of a stereo system. Systems commonly used in homes only cover a limited area (usually only one room). The legislative history explicitly makes size a relevant factor: "factors to consider in particular cases [include] the size . . . of the areas within the establishment where the transmissions are made audible."

Claire's stores are small. 631 out of 749 of Claire's stores are less than 1055 square feet. The smallest store is 458 square feet; the largest store is 3300 square feet. The parties stipulate that one speaker averages five to fifteen feet from the receiver, and the other speaker averages twenty to thirty-five feet from the receiver. The fact that the broadcast of music in this case covers these small areas strongly indicates that the stereo system is of a kind commonly used in private homes. We do note that Claire's larger stores (greater than 2000 square feet) are closer to exceeding the size of a typical home and thus present closer cases. Even the larger stores, however, are not of a sufficiently large size to deny automatically application of the exemption.

The legislative history also lists as a relevant factor "the extent to which the receiving apparatus is altered or augmented for the purpose of improving . . . the performance . . . ." Claire's has not altered or augmented the stereo system in any fashion in this case. The system has not been integrated with a public address or telephone system. Only two speakers are used, the maximum that the receiver can handle without alteration. This factor indicates that the configuration is home-type.

Two factors weigh in BMI's favor: the hiding of the speakers in a dropped ceiling and the concealment of the speaker wires. We agree with the district court that these factors should be accorded only minimal weight. The important considerations in determining whether a system is home-type are the type and sophistication of the equipment used, the size of the area in which the broadcast is audible, and whether the equipment has been altered, augmented, or integrated in some fashion. One might argue that since most homeowners do not drop speakers from the ceiling or conceal speaker wire in the ceiling, a system with these characteristics is not home-type. But Congress intended to preserve the exemption for the system in Aiken that had loudspeakers in the ceiling and presumably included hidden wiring. In addition, the legislative history focuses on the quality and scope of the broadcast as determining factors-the hiding of the wire and of the speakers is only marginally relevant to analysis of these factors.

BMI also argues that Claire's use of a corporate policy to coordinate the installation and replacement of the sound systems in its stores means that the systems cannot be considered home-type. This argument is without merit. The manner in which a system is installed is irrelevant to the determination of whether it is a home-type system. Claire's uses a home-type system in its stores. The system consists of simple components, it broadcasts over a small area, and it is not augmented or improved in any fashion.

D. Further Transmission

BMI's final argument is that Claire's further transmits the music broadcasts it receives in its stores and therefore fails to qualify for the ' 110(5) exemption. The phrase "further transmitted" is not defined in the Copyright Act. To "transmit" is "to communicate [a performance] by any device or process whereby images or sounds are received beyond the place from which they are sent." 17 U.S.C. ' 101. A radio station transmits its broadcasts, which are received by numerous radio sets. The question in this case is whether Claire's further transmits the broadcast it receives.

BMI argues that "it is undisputed that Claire's causes sounds to be received beyond the place where the performance is initially received" (Br. 39). This argument assumes that the performance is initially received at the receiver and then "further transmitted" via wire to other areas. Whatever its technical merits, this view of "further transmission" is contrary to the legislative history. The system in Aiken consisted of a radio set connected, presumably by wires, to four speakers. Congress intended such a system to be exempt under ' 110(5). Yet BMI's proposed rule would deny the exemption to the store in Aiken. In addition, the statute uses the term "receiving apparatus," which, as discussed above, encompasses not just the receiver but all the components of an integrated music system. It is sensible to consider that the entire receiving apparatus, and not just the receiver, "receives" the performance.

BMI refines its argument by suggesting that the fact that the receiver is placed in a back room separate from the selling area means that the music is further transmitted. This argument also fails. The nature of the transmission does not change because the speaker wire passes over or through a wall. If Congress wanted the rule to be that the receiver must be in the same room as the speaker for the exemption to apply, it could have easily said so.

To further transmit a performance must mean more than to run speaker wire through a wall. It must entail the use of some device or process that expands the normal limits of the receiver's capabilities. We recognize that this construction of "further transmission" means that most systems that further transmit also are not home-type. But since it is conceivable that even a home-type component could further transmit under this approach, the requirement of no "further transmission" is not mere surplusage.14

III. CONCLUSION

A recurring theme in BMI's argument is that Congress never intended ' 110(5) to apply to multimillion dollar corporations such as Claire's. This may be so, but the job of this Court is to apply the laws passed by Congress, and not to enforce a generalized and vague notion of intent. In any event, Congress' intent to limit the exemption to financially small organizations is far from clear. The language of ' 110(5), as well as most of its legislative history, is concerned with the quantity and quality of the receiving equipment used--is there more than one, is it home-type, does it further transmit? Congress, it seems, was not so much concerned with whether an establishment could afford a license but rather with whether the nature of the sound system was such that the performance it renders is more justly considered public in the common sense, if not technical copyright, notion of that term. The sound system used by Claire's passes the statutory tests for exemption, and therefore the judgment below for Claire's is affirmed.

 

 

14  We recognize that other cases find "further transmission" to occur solely because the speakers were placed in a different room than the receiver.  . . .  None of these cases relied solely on a finding of further transmission to support its holding.