1. In a suit to restrain the enforcement of a statute
prohibiting or regulating a business, the matter in controversy is
the right to carry on the business free from the prohibition or
regulation. P.
307 U. S.
100.
2. The burden of showing jurisdictional value in controversy is
on the plaintiff. P.
307 U. S.
102.
The value of the right to be free in one's business from a
statutory regulation may be shown by proving the additional cost of
complying with the regulation. P.
307 U. S.
103.
3. Owners of the copyrights of musical compositions, with a view
to protection against unlicensed public performances for profit for
which they received no compensation, granted to an unincorporated
association, of which they were the members, the exclusive right of
public performance for a term of years. It was the function of the
society to protect itself and its members from piracies and to
license public performances by others for royalties which, after
certain deductions, it distributed among its members, pursuant to
its
Page 307 U. S. 96
articles of association. In a suit by the society and some of
its members representing all, seeking to enjoin on constitutional
grounds the enforcement of a statute of Washington which purports
to regulate licensing by combinations of copyright owners, the bill
alleged generally that the value of the matter in controversy
exceeded $3,000, and also that the cost of complying with a
provision of the statute requiring copyright owners to file yearly
a list of their copyrighted works would involve costs to the
society, or to each of the members individually if they acted in
the matter without the society, of specified amounts each in excess
of the jurisdictional value.
Held:
(1) The allegations show that the members have a common and
undivided interest in the right to license in association through
the society free of the provisions of the state statute. P.
307 U. S.
103.
(2) Upon a motion to dismiss for want of jurisdictional amount,
which denied the allegations of the bill and challenged their
sufficiency in that regard, the District Court erred in dismissing
the bill without allowing plaintiffs the opportunity to produce
evidence of the cost of complying with the statute and of the value
of property rights affected by it. P.
307 U. S.
103.
24 F. Supp. 541 reversed.
Appeal from a decree of the District Court of three judges which
dismissed, for want of jurisdiction, a bill to enjoin the
enforcement of a statute of the Washington affecting the right of
the owners of copyrights to combine in licensing performances of
their musical compositions.
Page 307 U. S. 97
MR. JUSTICE REED delivered the opinion of the Court.
This is an appeal, under § 266 of the Judicial Code from a
decree dismissing appellants' bill to enjoin the enforcement by the
appellees of a statute of the Washington. [
Footnote 1] The purpose of the statute is to render
illegal certain activities carried on by pools of copyright owners
in authorizing by blanket licenses the performance of their musical
compositions.
The statute declares it unlawful for two or more persons holding
separate copyrighted works to pool their interests in order to fix
prices for their use, to collect fees, or to issue blanket licenses
for their commercial production. Joint undertakings for this
purpose are permitted if the licenses are issued at rates assessed
on a per-piece system of usage. All combinations of owners of
separate copyrighted musical works are required to file a complete
list of these works once each year with the Secretary of state of
the Washington, together with detailed information as to prices and
ownership. There are numerous other provisions unnecessary to
detail.
The appellants are the American Society of Composers, Authors,
and Publishers; Gene Buck, suing in his own name and as the
president of the Society, and a number of other members, corporate
publishers, and authors, composers or their next of kin. This suit
was brought by complainants on behalf of themselves and others
similarly situated, members of the Society too numerous to make it
practicable to join them as plaintiffs in a matter of common and
general interest. The bill alleges the organization of the Society
as a voluntary, unincorporated,
Page 307 U. S. 98
non-profit association under the laws of New York, and sets out
that its purpose is to protect the owners of copyrighted musical
works against piracies, to grant licenses, and to collect royalties
for the public performance for profit of the compositions of its
members. These are composers, authors, and publishers of musical
compositions or their successors. The royalties and license fees
collected by the Society are distributed from time to time, as
ordered by the Board of Directors, among the members of the
Society, after the payment of expenses of operation and sums due to
foreign affiliated societies and after the deduction of a limited
reserve fund.
In addition to the general allegation that the value of the
matter in dispute is in excess of $3,000, the bill alleges that the
value of each publisher's copyrights exceeds $1,000,000. The bill
further shows that each individual complainant has rights to
royalties and renewals worth in excess of $100,000. It is shown by
the bill that, in the State of Washington, there were five hundred
twenty-eight contracts outstanding in 1936, all entered into in the
name of the Society, from which it received more than $60,000, and
that similar sums annually will be collected. Other allegations are
discussed later.
On the filing of the bill, a motion was made for an
interlocutory injunction, and affidavits were filed in support of
the request. At the time the motion for a temporary injunction came
on for hearing, the defendant state officers and certain
intervenors filed motions to dismiss which challenged the bill on
various grounds. The district court considered only one ground:
whether the value of the subject matter in dispute is more than
$3,000, exclusive of interest and costs. Upon the hearing, the
district court found that neither the bill nor the record shows the
necessary jurisdictional value, and dismissed the bill. The basis
for this ruling is treated here.
Page 307 U. S. 99
Although this statute of Washington, as that of Florida,
[
Footnote 2] is aimed at the
power exercised by combinations of copyright owners over the use of
musical compositions for profit, the differences between the
enactments and the procedural situations require additional
consideration. The Florida statute does not permit any combination
of copyright owners for the purpose of licensing the use of their
compositions. The prohibition is complete. In the Washington
statute, on the other hand, such a combination, federation, or pool
is not prohibited if it issues licenses "on rates assessed on a
per-piece system of usage." Even upon these permitted transactions,
there are limitations of price and use unnecessary to consider
here. [
Footnote 3] The statute
is directed particularly at
Page 307 U. S. 100
the practice of issuing blanket licenses which authorize the
performance of all copyrighted material belonging to the licensor.
Whether a state statute is regulatory or prohibitory, when a bill
is filed against its enforcement under § 266 of the Judicial Code,
the matter in controversy is the right to carry on business free of
the regulation or prohibition of the statute. [
Footnote 4] Where the statute is regulatory, the
value of the right to carry on the business, as was said in
McNutt v. General Motors Acceptance Corp., may be shown by
evidence of the loss that would follow the enforcement of the
statute. And this loss may be something other than the difference
between the net profit free of regulation and the net profit
subject to regulation. The difficulties of determining the value of
rights by calculating past profits as compared with possible future
profits, influenced by the single factor of statutory regulation,
are obvious. This difference is not the only test of the value of
the right in question. The value of the matter in controversy may
be at least as accurately shown by proving the additional cost of
complying with the regulation. This factor was not offered in
evidence in the
McNutt case.
In
Packard v. Banton, [
Footnote 5] the existence of the jurisdictional amount was
partly determined by consideration of the cost of providing
liability insurance required by a regulatory statute. Where a state
railroad commission required the construction and service of an
industrial spur
Page 307 U. S. 101
which did not increase earning capacity, the cost was held to
measure the jurisdictional amount. [
Footnote 6] The expense of producing the information
required by a challenged order in a utility investigation was
considered sufficient to establish the value of the matter in
controversy. [
Footnote 7] The
cost of complying with the challenged statute as a test of the
value of the amount in controversy has been applied in effect in
suits to enjoin the collection of taxes as unconstitutional
interferences with the right to do business. In such cases,
"the sum due or demanded is the matter in controversy and the
amount of the tax, not its capitalized value, is the measure of the
jurisdictional amount. [
Footnote
8]"
By § 4 of the Washington statute, every combination of two or
more copyright owners must file, once a year, with the secretary of
state a complete list of their copyrighted works, under oath.
[
Footnote 9] By § 3,
individuals are forbidden from joining together "for the purpose of
collecting fees in this state" unless their licenses are on a
per-piece system of rates. In addition to the general allegation
that the value of the matter in controversy exceeds $3,000, the
bill alleges the cost of compliance by the Society, the
combination
Page 307 U. S. 102
of members, with § 4 would exceed $300,000. [
Footnote 10] For the individual members who
now have the benefits of the services performed by the Society,
additional allegations set out the cost imposed upon them by the
statutory regulation as being "in excess of $10,000" to each for
carrying on for themselves the functions now performed for them by
the Society. The motions to dismiss deny the general allegation of
value, deny that there would be any cost to the Society by
compliance with § 4, as the required list is already compiled and
the expense, since the Society is nonprofit, would be borne by
members, and deny that the individual complainants would be put to
a cost of $10,000 each. There was no allegation of the loss or cost
to the Society or members occasioned by the requirement that the
licenses from pooled copyrights should be issued at per-piece
rates.
On submission of the motion to dismiss for want of the
jurisdictional value, the burden of proof was upon complainants.
[
Footnote 11] Although the
trial court called specific attention to the jurisdictional matters
three months before it filed its opinion denying jurisdiction by
request for additional briefs, no evidence was offered after the
filing of the opinion and before the entry of the decree,
Page 307 U. S. 103
on complainants' motion, an order was entered to show cause why
witnesses should not be heard on the value of the matter in
controversy. The complainants furnished an uncontroverted affidavit
stating that their failure to offer evidence was due to the fact
that there was no denial of the facts pleaded. The offer of proof
showed that it was desired
"to offer the testimony of expert witnesses concerning the cost
of complying with the requirements of Section 4 of the Act, and
concerning the value of the property rights in question which will
be affected by this Statute."
The court did not reject the evidence as a matter of discretion
because tardily presented. On the hearing on the rule, the court
made it quite clear that the proffered evidence was deemed
immaterial because it showed only cost of compliance, not the value
of the right to do business free of the compulsion of the statute.
[
Footnote 12] The
application to take further testimony was denied, and the motion to
dismiss granted "in that this cause is not within the jurisdiction
of this court as a federal court." We conclude that the refusal to
permit additional evidence in these circumstances was error.
The complainants in this case are the same as those in
Gibbs
v. Buck, supra. In the
Gibbs case, we pointed out
that the members share directly in the earnings of the Society, and
have a common and undivided interest in
Page 307 U. S. 104
the right to license in association through the Society free of
the provisions of the state statute. The allegations as to
relationship between the Society and its members show the same
status in this case. The fact that
"neither practice nor rule of the committee concerning the
apportioning among the Society's members of the pooled license fees
realized is shown [
Footnote
13]"
does not affect the rights members have in the apportionment of
the royalties from license fees. These rights are granted by the
articles of association which are a part of the bill.
KVOS,
Inc. v. Associated Press, [
Footnote 14] relied upon below, is distinguished in the
Gibbs case.
The cause will be remanded to the District Court with directions
to permit the introduction of evidence, and for further proceedings
not inconsistent herewith.
Reversed.
MR. JUSTICE BLACK dissents.
MR. JUSTICE FRANKFURTER took no part in the consideration or
decision of this case.
[
Footnote 1]
Buck v. Case, 24 F. Supp. 541. Washington Laws 1937, c.
218, p. 1070.
[
Footnote 2]
Considered in
Gibbs v. Buck, ante, p.
307 U. S. 66.
[
Footnote 3]
Washington Laws, 1937, § 3, c. 218, p. 1071, reads as
follows:
"It shall be unlawful for two or more persons holding or
claiming separate copyrighted works under the copyright laws of the
United States, either within or without the state, to band
together, or to pool their interest for the purpose of fixing the
prices on the use of said copyrighted works, or to pool their
separate interests or to conspire, federate, or join together, for
the purpose of collecting fees in this state, or to issue blanket
licenses in this state, for the right to commercially use or
perform publicly their separate copyrighted works:
Provided,
however, such persons may join together if they issue licenses
on rates assessed on a per piece system of usage:
Provided,
further, This act shall not apply to any one individual author
or composer or copyright holder or owner who may demand any price
or fee he or she may choose for the right to use or publicly
perform his or her individual copyrighted work or works:
Provided, further, such per-piece system of licensing must
not be in excess of any per-piece system in operation in other
states where any group or persons affected by this act does
business, and all groups and persons affected by this act are
prohibited from discriminating against the citizens of this state
by charging higher and more inequitable rates per piece for music
licenses in this state than in other states:
Provided,
further, where the owner, holder, or person having control of
any copyrighted work has sold the right to the single use of said
copyrighted work, where its sole value is in its use for public
performance for profit, and has received any consideration
therefor, either within or without the state, then said person or
persons shall be deemed to have sold and parted with the right to
further restrict the use of said copyrighted work or works."
[
Footnote 4]
Prohibitory statutes --
Gibbs v. Buck, supra;
regulatory statutes --
McNutt v. General Motors Acceptance
Corp., 298 U. S. 178,
298 U. S. 181;
Kroger Grocery Co. v. Lutz, 299 U.
S. 300,
299 U. S.
301.
[
Footnote 5]
264 U. S. 264 U.S.
140.
[
Footnote 6]
Western & Atlantic R. Co. v. Railroad Comm'n,
261 U. S. 264,
261 U. S. 267.
[
Footnote 7]
Petroleum Exploration, Inc. v. Public Service Comm'n,
304 U. S. 209,
304 U. S.
215.
[
Footnote 8]
Healy v. Ratta, 292 U. S. 263,
292 U. S. 271,
and cases there cited;
Grosjean v. American Press Co.,
297 U. S. 233,
297 U. S. 241;
Henneford v. Northern Pacific Ry., 303 U. S.
17,
303 U. S.
19.
[
Footnote 9]
The list must state that it
"is a complete catalogue of the titles of their claimed
compositions, whether musical or dramatic or of any other
classification, and, in addition to stating the name and title of
the copyrighted work, it shall recite therein the date each
separate work was copyrighted and the name of the author, the date
of its assignment, if any, or the date of the assignment of any
interest therein, if any, and the name of the publisher, the name
of the present owner, together with the addresses and residences of
all parties who have at any time had any interest in such
copyrighted work."
[
Footnote 10]
Specifically, the allegation is that
"The cost to the Society of attempting to compile the lists and
information required to be furnished under the State Statute would
be far in excess of $300,000, which sum would have to expended for
research work with reference to the past history of each and every
copyright owner, by every one of the 44,000 members of the Society
and its affiliated societies, lawyers fees for opinions as to the
rights of parties involved with respect to the ownership, grants,
licenses and other interests in the respective copyrights, clerical
help, and other incidental expenses; even with such an expenditure,
it would be utterly impossible to furnish an accurate or complete
list of all the respective copyrights of the members of the Society
and of its affiliated societies with all of the data required by
the state statute."
[
Footnote 11]
McNutt v. General Motors Acceptance Corp., 298 U.
S. 178,
298 U. S.
189.
[
Footnote 12]
E.g., this statement was made by the court:
"Perhaps we are somewhat in the fog with respect to the matter
you are trying to present, but from our viewpoint, it seems to us
that you are urging that the value of the thing in controversy is
to be measured by the cost of doing business or complying with the
statute. From our standpoint, we think the cost of doing business
has nothing to do with the method of doing business. It is true the
statute may necessitate a large expenditure, but that would not
mean anything, because, by a large expenditure, you might make a
much larger profit. Perhaps we don't understand each other, but I
think that is the basis of measuring the value of the matter in
controversy."
[
Footnote 13]
Buck v. Case., 24 F. Supp. 541, 549.
[
Footnote 14]
299 U. S. 299 U.S.
269.