Exemptions for Some, Miniature American Flags for Others:

An Analysis of the Playwrights Licensing Antitrust Initiative Act of 2005

VOLUNTARY TRADE REPORTS NO. 8

JANUARY 2006

Introduction

Rep. Howard Coble (R-North Carolina) and three other members of the House of
Representatives1 have introduced legislation that would exempt playwrights from the
antitrust laws when developing a standard contract for use by individual playwrights and
theater producers. H.R. 532, the “Playwrights Licensing Antitrust Initiative Act of 2005,”
(also called the PLAI Act) would protect the First Amendment rights of playwrights to
engage in voluntary speech and association free of potential antitrust claims for illegal “price-
fixing.”2 The Dramatists Guild of America and a number of prominent playwrights have
advocated such legislation to combat what they consider an unequal playing field when
negotiating with producers. This report will examine the arguments for and against H.R. 532
and consider the broader issue of industry-specific antitrust exemptions.

H.R. 532 would exempt from the antitrust laws “any joint discussion, consideration,
review, action, or agreement for the express purpose of, and limited to, the development of a
standard form of contact” between playwrights3 and producers4. The bill allows playwrights
to collectively adopt a standard contract, subject to amendment by individual playwrights
and producers consistent with the contract’s terms.

1 John Conyers (D-New York), Henry Hyde (R-Illinois), and Barney Frank (D-Massachusetts).
2 The full text of H.R. 532 is reproduced in the appendix to this report.
3 A “playwright” is defined by H.R. 532 as an “author, composer, or lyricist of a dramatic or musical work
intended to be performed on the speaking stage and shall include, where appropriate, the adapter of a work
from another medium.”
4 A “producer” is defined as a person who holds the rights to present a stage play, including “any person who
presents a play as first class performances in major cities, as well as those who present plays in regional and
not-for-profit theaters.”

Voluntary Trade Reports (ISSN applied for), number 8, is published twice per month by Citizens for Voluntary
Trade d/b/a The Voluntary Trade Council, Post Office Box 100073, Arlington, VA 22210. S.M. Oliva, editor.

©2006 by The Voluntary Trade Council. All rights reserved. This publication may be freely copied and
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 Voluntary Trade Reports No. 8

Justifications and Legislative Intent

Rep. Coble introduced H.R. 532 on February 2, 2005. The bill was immediately
referred to the House Judiciary Committee. Neither Coble nor any of his co-sponsors have
made any official statements about the bill. During the preceding 108th Congress, Coble
and his co-sponsors introduced identical legislation, H.R. 4615, but again no formal
statement was made. H.R. 4615 was also referred to the House Judiciary Committee,
which took no subsequent action. There was, however, a record of Senate action during
the 108th Congress on another identical proposal, S. 2349. That bill was introduced by
Senators Orrin Hatch (R-Utah) and Edward M. Kennedy (D-Massachusetts) and received a
hearing before the Senate Judiciary Committee on April 28, 2004. No further action was
taken following the hearing.5

Upon introducing S. 2349, Sen. Hatch said the primary intent of the legislation was to
allow playwrights to operate on a level playing field with other segments of the theater
industry:

This legislation is designed to ensure the continued vitality of American

theater. When the theater is crowded and the curtain rises, it is easy to forget
that the entire show began with one person: the lone playwright who put
pen to paper. While this artistic independence--and the individual expression
it fosters--are absolutely central to the continuing vitality of quality live
theater in America, it has resulted in individual playwrights being
increasingly forced into a situation where they bargain alone against
corporate behemoths and organized labor groups over terms of
compensation and artistic control when their works are performed on
Broadway.

Due to the interaction of Federal labor law, the antitrust laws, and the
Copyright Act, playwrights and their voluntary peer membership
organization, the Dramatists Guild of America, operate under the shadow of
possible antitrust litigation, which has substantially and detrimentally
decreased their ability to coordinate their actions in protecting their artistic
and financial interests. This has impeded the ability of playwrights to act
collectively in dealing with highly-organized and unionized groups--such as
actors, directors, and choreographers on the one hand--and the increasingly
consolidated producers and investors on the other.6

5 Identical legislation was also introduced in both the House and Senate during the 107th Congress.
6 150 Cong. Rec. S4377-4378 (April 26, 2004) (statement of Sen. Hatch).

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At the April 2004 hearing on S. 2349, several notable playwrights testified in support
of an antitrust exemption. The now-deceased Arthur Miller told the Senate Judiciary
Committee that the “national interest” in protecting the theater justified the bill's passage:

The American theater has undergone enormous changes over the years.
From its entrepreneurial start it has become increasingly dominated by
corporate interests. Sure, business is changing in virtually every sector of our
economy and there is no reason that the theater should be immune from
business pressures.

But, unfortunately, in the midst of these increasing pressures, only one entity
does not have a seat at the bargaining table: the playwrights. The status of
the playwright is difficult to discern as it has fallen under the long shadow of
questionable and conflicting legal opinions. The result is that all other
entities have the collective power and ability to fight for their rights. As a
result, it is the playwright who gets squeezed.

The Playwrights Licensing Antitrust Initiative Act of 2004 would provide a

very limited legislative fix that would allow for the standard form contract
that was last negotiated in 1982 to be updated to take account of today’s
market realities and intellectual property protection climate. It does not force
producers to hire any playwrights, but it does allow playwrights with a
willing producer to protect their economic and artistic interests.

Today many new playwrights are presented with take-it-or-leave-it contracts.

In their hunger to get their plays produced, many have no choice. Others,
facing the economic pressures that face all-too-many people in today’s
economy, are abandoning their dreams of writing for the theater as they go
to Hollywood or write for other media.7

Playwright Wendy Wasserstein8 emphasized that playwrights faced increasing

pressure from producers to compromise the artistic integrity of their works:

Think of what would have been the impact to Arthur Miller’s “Death Of A
Salesman” if the producers had demanded that he change the end of the play
to have a happy ending. Imagine, for the sake of selling tickets, if Eugene

7 S. 2439: The Playwrights Licensing Antitrust Initiative Act: Safeguarding the Future of the American Live
Theater, Hearing Before the S. Judiciary Comm., 108th Cong. 49 (2004) [hereinafter Hearing] (prepared
testimony of Arthur Miller, Playwright).
8 Ms. Wasserstein sadly died on the day this paper was scheduled for publication.

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O’Neill had been persuaded to transform the Tyrone family in “Long Days
Journey Into Night” into a fun-loving Brady Bunch. It may sound absurd to
you, but the pressures on young playwrights are enormous and they are
increasing.9

The Dramatists Guild of America, a voluntary organization composed of more than

6,000 playwrights, told the committee that under a series of court rulings dating back to
the 1940s, the Guild had “operated under the constant threat of the application of the
Sherman Act.”10 The problem faced by the courts is deciding whether playwrights are
employees—in which case the Guild could be construed as a labor union under federal
law—or independent contractors forbidden from collaborating on certain subjects under
the antitrust laws. The Guild noted that

playwrights have to function in a nether-world. They are caught between the

highly organized unions (e.g., actors, directors, choreographers, costume,
scenic and lighting designers, musicians and stagehands) on the one hand,
and the increasingly incorporated producers on the other.11

Unlike television or motion picture writers, who generally author works-for-hire that
are subject to unilateral modification by producers, a playwright retains copyright in their
works and, consequently, a theatrical producer cannot alter a play without the
playwright's consent. Playwrights also do not take direction from the producers in
creating their works, as would be the case with a writer on a television show. Conversely,
actors, directors, and other (unionized) theatrical participants are employees, because they
are hired under contract with the producer to provide specific services subject to his
direction, modification, and control.

The Guild and its legislative allies have maintained that playwrights are at an unfair
economic disadvantage compared to unionized employees and producers. Although
independence is essential to a playwright's creative process, the ability to work together
with other playwrights in seeking favorable compensation terms is equally important. On
the other side, the theatrical producers view such collaboration as a threat to their
economic position, and accordingly they view the existing antitrust laws as a necessary
means of protection.

9 Hearing, supra note 6, at 12 (statement of Wendy Wasserstein, Playwright).

10 Hearing, supra note 6, at 36 (written testimony of the Dramatists Guild of America).
11 Id. at 38.

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Analysis and Objections to H.R. 532

Theatrical producers are, not surprisingly, opposed to a statutory antitrust exemption

for playwrights. At the Senate hearing on S. 2349, Gerald Schonfeld, chairman of the
Shubert Organization, said that it was the Dramatists Guild and not producers who had
imposed unfair restraints on theater productions. Schonfeld testified that since 1985 the
Guild had maintained a “suggested” uniform contract for playwrights that imposed de
facto minimum compensation terms on producers.12 Individual playwrights cannot
negotiate with producers, Schonfeld said, because “[t]he ultimate party that is granted the
right to approve the terms and conditions of the agreement negotiated between the
producer and the dramatist(s) is reserved exclusively to the Guild.”13 Any playwright that
does not conform to the Guild's decision must resign. Schonfeld said the Guild-imposed
uniform contract impaired the marketplace, because “all dramatists are not equally
talented yet they must receive at least the same terms and conditions.”14

Roger S. Berlind, a producer with nearly 30 years of experience, added that

strengthening the Guild's position via an antitrust exemption would actually starve off
competition from newer, unproven playwrights:

It's just a fact that one might not structure the same arrangement for a brand-
new never-before produced play by an unknown author as for one of the
distinguished playwrights sitting here. That's not unfair; it's what allows the
unknown author to become known. If the proposal were enacted, instead of
a free market, we would have a closed market with The Dramatists’ Guild
somehow becoming a gatekeeper for adherence to “pre-agreed” terms. That
is what we cannot accept, and that is why there are so many productions of
plays by non-members of that organization than by members.15

This last sentence undermines Berlind's argument, however. If the Guild's current
activities have led producers to work with more non-Guild playwrights, then how would
a statutory antitrust exemption change things? A producer would still be able to substitute
non-Guild playwrights if the Guild insisted on standard contract terms that were
12 This suggested contract, the Approved Production Contract, has existed in one form or another for several
decades. The most recent version came about after a group of producers filed an antitrust lawsuit against
the Guild; the Guild counter-sued, and the case was settled by adopting the APC that is still in use. See
Barr v. Dramatists Guild, Inc., 573 F. Supp. 555 (S.D.N.Y. 1983).
13 Hearing, supra note 6, at 11 (statement of Gerald Schoenfeld, Chairman, League of American Theaters and
Producers, and Chairman, The Schubert Organization).
14 Id.
15 Hearing, supra note 6, at 14 (statement of Roger S. Berlind, Producer, Berlind Productions, on behalf of the
League of American Theaters and Producers, Inc.).

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objectionable. H.R. 532 and its predecessors do not propose granting the Guild monopoly
bargaining power under the National Labor Relations Act, nor would the Guild be given
any power to exclude non-conforming playwrights that it does not already possess. An
antitrust exemption, in this case, would not convert the Guild from a voluntary association
into a coercive monopolist.

Berlind also drew an improper conclusion regarding “free” versus “closed” markets.
He stated that an antitrust exemption would convert the playwriting market from the
former into the latter. But this presumes that antitrust laws are part of the “free” market,
and that any deviation from such laws will result in a “closed” market controlled by a
monopolist. Just the opposite is true. The antitrust laws—particularly the Sherman Act,
which bans certain horizontal agreements between nominal competitors—generally
prevents buyers and sellers from interacting in a free market. The Sherman Act enables
courts and government regulators to decide after-the-fact what market participants (i.e.
consumers or competitors) should benefit from a particular transaction, and thus what
economic outcomes will maximize “social welfare” according to the judge or regulator's
own subjective values.

Congress, the ultimate antitrust regulator, has created a three-tiered hierarchy with
individual market actors at one end; coercive monopolies including labor unions on the
other end; and in the middle are voluntary associations that are at-risk for antitrust
condemnation, such as the Dramatists Guild. The theory is that while individuals possess
certain “economic” rights, such as the right to negotiate contracts, this right cannot be
exercised by individuals working together except by permission of the state. Hence, the
Guild's members cannot work together voluntarily on certain contractual matters deemed
off-limits by antitrust policy, but if they met certain state requirements, they could unite in
a coercive entity (a union.) The antitrust exemption proposed by H.R. 532 would
theoretically relieve the Guild's members of having to choose between these two extremes.

The producers' objections boil down to this: the Guild would use an antitrust
exemption to impose uniform contract terms on producers, thereby raising prices
(advances and royalties) and creating a compensation floor that will make it unprofitable
to take risks on plays written by less-established authors. But if this is true, then it is
because the less-established playwrights have freely chosen to price themselves out of the
market by adopting the Guild's uniform contract scheme. The individual playwright—not
the Guild—owns his own labor. The Guild is incapable of forming a “cartel” whereby a
part of the labor supply is withheld to sell the reduced supply at a higher price. Instead, if
all playwrights insist on Guild-fixed prices, then some will be hired at that price while the
remainder will go unemployed.

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The question, then, is why would the less-established playwrights support a scheme
that is likely to result in their under- or unemployment. The answer comes from economist
Murray Rothbard:

The only answer, in the absence of coercion, is that they have adopted on a
commandingly high place on their value scales the goal of not undercutting
union wage rates. Unions, naturally, are most anxious to persuade workers,
both union and nonunion, as well as the general public, to believe strongly in
the sinfulness of undercutting union wage rates. This is shown most clearly
in those situations where union members refuse to continue working for a
firm at a wage rate below a certain minimum (or on other terms of
employment). This situation is known as a strike. The most curious thing
about a strike is that the unions have been able to spread the belief
throughout society that the striking members are still “really” working for
the company even when they are deliberately and proudly refusing to do so.
The natural answer of the employer, of course, is to turn somewhere else and
to hire laborers who are willing to work on the terms offered. Yet unions have
been remarkably successful in spreading the idea through society that
anyone who accepts such an offer—the “strikebreaker”—is the lowest form
of human life.16 (Italics in original.)

The producers view the Guild as troublemakers whose actions make plays more
difficult to profitably stage. Rothbard would probably concur in that he observed unions
“attempt to persuade workers that they can better their lot at the expense of the employer.
Consequently, they invariably attempt as much as possible to establish work rules that
hinder management’s directives.”17 Such work rules will tend to reduce output and raise
costs, as the producers have alleged. But once again, so long as the union does not use
coercion to overrule the rights of individual union members, the union's actions remain
consistent with free-market principles.

The producers' real objection, then, is that the Guild operates as a forum for
playwrights to peaceably assemble and discuss their respective economic standing relative
to producers and other theatrical employees. Such speech and assembly is not only
consistent with the free market, they are protected from congressional encroachment—via
the antitrust laws or other legislation—under the First Amendment to the United States
Constitution. The Guild may be undermining the professional interests of some (or all) of
its members, but it is up to the affected individuals to take responsibility for their own
careers. The producers may attempt to influence playwrights to reject the Guild's control,
16 MURRAY N. ROTHBARD, MAN, ECONOMY, AND STATE 625-626 (rev. ed., Ludwig Von Mises Inst. 2001) (1962).
17 Id. at 627.

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but invoking antitrust law to forcibly silence the Guild would not advance free-market
principles.

Justifying Selective Exemptions

A more interesting argument against H.R. 532 is that it would create an uneven
playing field by giving playwrights an antitrust exemption without giving producers
similar immunity. Although no evidence of producer collusion was offered at the 2004
Senate hearing, it is conceivable that the Guild or another playwright organization might
use antitrust litigation (or seek regulatory intervention) to coerce agreement from
producers on contract terms. This has happened in other industries where one side of a
contractual relationship was given antitrust immunity. The relevant questions here are (1)
whether a one-sided exemption can be justified on principle; and (2) whether a
playwright-only exemption would unduly alter the status quo and undermine the rights
of producers.

The first question can be answered by examining an analogous situation: tax

exemptions. The American tax code is filled with selective exemptions: Some
organizations, such as the Voluntary Trade Council, are exempt from paying any income
tax on its revenue because it is organized for a purpose deemed “charitable” by Congress;
businesses may deduct the cost of providing health insurance to their employees;
individuals may deduct interest on their home mortgages; and so forth. Critics of some (or
all) of these exemptions argue that is unjust to create “loopholes” that prevent the taxation
of all citizens on equal (or perhaps egalitarian) terms. Proposals for tax “reform” often call
for the elimination of exemptions. As with proposed antitrust exemptions, there is a belief
that tax deductions constitute a state subsidy. But just the opposite is true, as Rothbard has
explained:

[A]n exemption from taxation or any other burden is not equivalent to a

subsidy. There is a key difference. In the latter case a man is receiving a
special grant of privilege wrested from his fellowmen; in the former he is
escaping a burden imposed on other men. Whereas the one is done at the
expense of his fellowmen, the other is not. For in the former case, the grantee
is participating in the acquisition of loot; in the latter, he escapes payment of
tribute to the looters. To blame him for escaping is equivalent to blaming the
slave for fleeing his master. It is clear that if a certain burden is unjust, blame
should be levied, not on the man who escapes the burden, but on the man or
men who impose it in the first place. If a tax is in fact unjust, and some are
exempt from it, the hue and cry should not be to extend the tax to everyone, but
on the contrary to extend the exemption to everyone. The exemption itself

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cannot be considered unjust unless the tax or other burden is first established
as just.18

The antitrust laws, particularly the Sherman Act's restrictions on free speech and
association, are not just according to Rothbard's ethics or any similar standard.19 From this
basis, it follows that exempting playwrights and producers is just, but that absent such a
proposal, it is still just to exempt one or the other.

The antitrust exemption contained in H.R. 532 would not be a subsidy of the
Dramatists Guild or of any particular playwright. The exemption simply removes the
threat of antitrust litigation in retaliation for the exercise of certain basic rights by
playwrights. The primary beneficiaries of such litigation, were it to occur under existing
law, would be the lawyers representing the adversarial parties, and not the parties
themselves or “competition” generally. Antitrust can be viewed as an indeterminate
transfer of capital from a market's participants—buyers and sellers—to the professional
antitrust bar and supporting agencies (courts, law enforcement, administrative staff, etc.)
Reducing the antitrust liability within an industry, even for just one participant, will thus
reduce the likely future loss of capital to the antitrust establishment, which in turn will
benefit the free market.

But to now address the second question, does eliminating the antitrust burden for
playwrights concurrently raise the burden for producers, thus unduly prejudicing their
rights? The answer would be yes if altering the status quo created an unequal application of
the law. For example, if Congress exempts members of group A from laws forbidding
murder but not members of group B, then the rights of the latter group are unduly
prejudiced relative to the prior status of both groups. But in the case of antitrust, the law is
inherently unequal and arbitrary in its application. All persons are not equal under antitrust
law, because some groups (i.e. “consumers”) are given superior legal standing to other
groups (i.e. “producers”.) The composition and relative standing of these groups are not
fixed, however, but rather they change due the interaction of regulators, courts, and
members of the antitrust bar. It is impossible to know in advance what a particular group's
antitrust liability is absent a statutory exemption. (And even statutory exemptions are
subject to judicial “interpretations” that may narrow their scope.) Indeed, the impetus for
H.R. 532 and its predecessors was the well-acknowledged gray area that playwrights and
the Guild occupied under existing antitrust statutes; it is simply unclear what precise
liability the Guild has incurred or will incur in the future.

18 MURRAY N. ROTHBARD, POWER AND MARKET: GOVERNMENT AND THE ECONOMY 71 (2d ed. 1977) (1970).
19 See id. at 33-35.

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From the producers standpoint, however, the antitrust burden is unchanged by

exempting playwrights. More to the point, exempting playwrights doesn't leave producers
any worse off in terms of potential antitrust liability, nor does it violate their rights any
more than the status quo. A playwright-only exemption might place producers at a tactical
disadvantage in negotiations—because the Guild could threaten antitrust litigation while
producers could not reciprocate—but the ability to initiate antitrust litigation is a privilege
created by statute, not a right.

Conclusion

Selective antitrust exemptions are not ideal policy. One-sided exemptions obviously
reflect Congress's favoritism to some industry participants over others. The sponsors of
H.R. 532 and its antecedents have been motivated, at least in part, by a belief that
producers have acted “unfairly” in negotiations with playwrights. Ideally, Congress would
not use legislation to sway private contract talks one way or the other. But this does not
negate the merits of exempting playwrights—or any particular group—from the antitrust
laws. For the reasons discussed above, H.R. 532 can be justified regardless of the motives
of the sponsors.

Additional Information

The entire text of the Senate Judiciary Committee's 2004 hearing can be downloaded at
http://www.voluntarytrade.org/downloads/SenateHearing04.pdf.

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Appendix

109th CONGRESS

1st Session

H. R. 532

To modify the application of the antitrust laws to permit collective development and
implementation of a standard contract form for playwrights for the licensing of their plays.

IN THE HOUSE OF REPRESENTATIVES

February 2, 2005

Mr. COBLE (for himself, Mr. CONYERS, Mr. HYDE, and Mr. FRANK of
Massachusetts) introduced the following bill; which was referred to the Committee on the
Judiciary

A BILL

To modify the application of the antitrust laws to permit collective development and
implementation of a standard contract form for playwrights for the licensing of their plays.

Be it enacted by the Senate and House of Representatives of the United States of

America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Playwrights Licensing Antitrust Initiative Act of 2005'.

SEC. 2. NONAPPLICATION OF ANTITRUST LAWS.

(a) In General- Subject to subsection (c), the antitrust laws shall not apply to any
joint discussion, consideration, review, action, or agreement for the express purpose of,
and limited to, the development of a standard form contract containing minimum terms of
artistic protection and levels of compensation for playwrights by means of--

(1) meetings, discussions, and negotiations between or among playwrights or

their representatives and producers or their representatives; or

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(2) joint or collective voluntary actions for the limited purposes of developing a
standard form contract by playwrights or their representatives.

(b) Adoption and Implementation- Subject to subsection (c), the antitrust laws shall
not apply to any joint discussion, consideration, review, or action for the express purpose
of, and limited to, reaching a collective agreement among playwrights adopting a standard
form contract developed pursuant to subsection (a) as the participating playwrights sole
and exclusive means by which participating playwrights shall license their plays to
producers.

(c) Amendment of Contract- A standard form of contract developed and

implemented under subsections (a) and (b) shall be subject to amendment by individual
playwrights and producers consistent with the terms of the standard form contract.

SEC. 3. DEFINITIONS.

In this Act:

(1) ANTITRUST LAWS- The term `antitrust laws' has the meaning given it in
section (a) of the first section of the Clayton Act (15 U.S.C. 12), except that such term
includes section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to the extent that
such section applies to unfair methods of competition.

(2) PLAYWRIGHT- The term `playwright' means the author, composer, or

lyricist of a dramatic or musical work intended to be performed on the speaking stage and
shall include, where appropriate, the adapter of a work from another medium.

(3) PRODUCER- The term `producer'--

(A) means any person who obtains the rights to present live stage
productions of a play; and

(B) includes any person who presents a play as first class performances in
major cities, as well as those who present plays in regional and not-for-profit theaters.

END

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