Lead Opinion
OPINION ANNOUNCING THE JUDGMENT OF THE COURT
Appellant, the Philadelphia Eagles Football Club, Inc. (“Football Club”), seeks relief from assessment of the Business Privilege Tax (“BPT”) imposed by Appellee, the City of Philadelphia (“City”). We agree with the Commonwealth Court below that the Football Club’s media receipts arising from the television broadcast of football games were subject to the BPT as copyright royalties for the licensing of a property right. We disagree, however, with the Commonwealth Court
I. FACTS AND PROCEDURAL HISTORY
The First Class City Business Tax Reform Act
Cash, credits, property of any kind or nature, received from conducting any business or by reason of any sale made, including resales of goods, wares or merchandise taken by a dealer as a trade-in or as part payment for other goods, wares or merchandise or services rendered or commercial or business transactions, without deduction therefrom on account of the cost of property sold, materials used, labor, service or other cost, interest or discount paid or any other expense. [Specific provisions for taxpayers involved in the business of insurance.] Receipts of any business shall exclude: [listing eleven separate exclusions, which are not relevant here].
Id. § 19-2601.
where a taxpayer, whether a domestic or foreign corporation or any other type of business entity, maintains its commercial domicile in Philadelphia, all patent, copyright and trademark royalties received are to be included in the measure of tax unless attributable to business conducted at a place of business regularly maintained by the taxpayer outside of Philadelphia.
City of Philadelphia Business Privilege Tax Regulations § 322.
During all the tax years relevant to the instant appeal, the Football Club, a Delaware corporation with its principal place of business located in Philadelphia, owned and operated the Philadelphia Eagles football team (“Eagles Team”). The Football Club was a member of the National Football League (“NFL”), an unincorporated, non-profit association of member clubs that own and operate professional football teams. As a
The Football Club filed timely BPT tax returns for the tax years 1986 through 1994 and paid the BPT in accordance with those filings. The City audited the Football Club for tax years 1986 through 1992, and issued a notice of assessment on April 22, 1994. In response to the City’s audit assessment of the BPT, on June 3, 1994, the Football Club filed a Review Petition with the Philadelphia Tax Review Board (“Board”), seeking relief from the City’s assessments of the BPT, which totaled $730,705.39 for the years 1986 through 1992.
In a decision dated December 3,1997, the Board denied the Football Club’s Refund Petition and granted in part and denied in part the Football Club’s Review Petition. The Board agreed with the Football Club that only one-half of the Football Club’s media receipts should be included in gross receipts for purposes of assessing the BPT. The Board determined that the media receipts constituted fees for services rendered, i.e., fees for the playing of football games by the Eagles Team. Because the Eagles Team played one-half of its football games in Philadelphia and one-half of its games in other cities, the Board concluded that one-half of the Football Club’s media receipts were subject to the BPT as fees for services rendered in Philadelphia.
The Football Club filed an appeal with the Court of Common Pleas of Philadelphia County on December 15,1997. The next day, the City filed a cross appeal.
Both the Football Club and the City appealed from the decision of the common pleas court, and the Commonwealth Court subsequently consolidated the appeals. On July 26, 2000, a five-member panel of the Commonwealth Court unanimously affirmed the order of the Court of Common Pleas. See Philadelphia Eagles Football Club, Inc. v. City of Philadelphia,
We granted allocatur to consider two issues: 1) whether the Commonwealth Court erred in concluding that the Football Club’s media receipts arising from the television broadcast of footballs games pursuant to the Network Contracts were copyright royalties subject to the BPT; and 2) whether the Commonwealth Court erred in holding that the City was not required to apportion the Football Club’s media
II. MEDIA RECEIPTS
On appeal here, the Football Club claims that the Commonwealth Court erred in reversing the Board’s determination that the media receipts paid pursuant to the Network Contracts were fees for services rendered, and instead concluding that because the Network Contracts describe the transfer of exclusive television broadcast rights in exchange for rights payments, the media receipts were subject to the BPT as copyright royalties from the licensing of a property right. We disagree.
A. Networks Paid Media Receipts in Exchange for an Exclusive Right
The Football Club first argues that the networks paid it the media receipts in exchange for the playing of football games by the Eagles Team, i.e., the media receipts were fees for services rendered. The Football Club maintains that the networks controlled the entire structure of NFL football games, and that the NFL was (and still is) geared toward providing a live entertainment service to the networks. According to the Football Club, because the Network Contracts were structured around the NFL teams providing a service to the networks that was live and was broadcast only once, the media receipts were taxable as fees for services rendered.
Contrary to the Football Club’s assertions, however, Congress has long recognized that what the television networks broadcasting NFL football games pay NFL league members for is the exclusive right to telecast the games live, and not for the actual playing of the football games. In 1961, the NFL
Federal courts examining broadcasting contracts between the NFL and the networks have also consistently concluded that such contracts involve the sale or transfer of exclusive rights to televise games. See, e.g., Shaw v. Dallas Cowboys Football Club, Ltd.,
The plain language of the Network Contracts also refutes the Football Club’s argument. The Network Contracts clearly treat the arrangement between the parties as the transfer of the right to broadcast the live telecast of football games played by the NFL teams to the networks. Specifically, section 1 of the Network Contracts, entitled “Television Rights Transferred,” gave the networks exclusive “over-the-air broadcast telecasting rights” to specific NFL games scheduled to be telecast. See NFL/NBC Contract, pp. 1-2, R.R., vol. 2, at 782a-783a. In return, the NFL received rights fees from the network, which were paid in periodic installments in accordance with an agreed upon schedule. See id., p. 22, at 803a; see also Letter from NFL to NBC Network, 2/14/91, R.R., vol. 2, at 781a (in exchange for right to televise NFL games, network “will pay rights fees to the [NFL] member clubs”). Moreover, the Network Contracts specifically referred to the NFL member teams’ “proprietary rights in each
While we completely agree with the Football Club that the obligation to play football games was a necessary and crucial component of the Network Contracts, it nevertheless stands that simply playing the game was not enough for the Football Club to generate its right to payment of media receipts from the networks. Rather, the broadcast of the games was the crux of the contract, as evidenced by the fact that a football game only reached its true value by being telecast. The Football Club, as a member of the NFL, was only paid media receipts pursuant to the contractual provisions granting the networks the exclusive right to telecast the games.
B. The NFL and its Member Clubs are Copyright Owners of NFL Telecasts
Next, the Football Club claims that, even if the media receipts it received pursuant to the Network Contracts were given in exchange for exclusive broadcasting rights, the Commonwealth Court improperly characterized the media receipts as copyright royalties from the licensing of a property right. Again, we disagree.
The United States Constitution grants Congress authority “[t]o promote the Progress of Science and useful Arts, by securing for limited times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S. Const, art. I, § 8, cl. 8; 17 U.S.C. § 201(a). Pursuant to this authority, Congress has implemented legislation to protect a copyright, most recently by enacting the Copyright Act of 1976 (“Act”).
The Football Club first argues that the media receipts cannot be copyright royalties because the right to broadcast an event live is not a property right. According to the Football Club, the broadcasting rights given by the NFL to the network merely constituted a right to create copyrightable works, not a right to use already copyrighted works.
Under the Copyright Act of 1909, the predecessor to the current Act, there was uncertainty as to whether live broadcasts were copyrightable. However, this is no longer the case because the Act expressly provides that “[a] work consisting of sounds, images, or both, that are being transmitted, is ‘fixed’ ... if a fixation of the work is being made simultaneously with its transmission.” 17 U.S.C. § 101. Notably, the Congressional Report to Section 101 clearly shows that Congress had television coverage of sporting events, such as NFL football games, specifically in mind when it codified changes to federal copyright law in 1976:
The bill seeks to resolve, through the definition of ‘fixation’ in section 101, the status of live broadcasts—sports, news coverage, live performances of music, etc.—that are reaching the public in unfixed form but that are simultaneously being recorded. When a football game is being covered by four television cameras, with a director guiding the activities of the four cameramen and choosing which of their electronic images are sent out to the public and in what order, there is little doubt that what the cameramen and the director are doing constitutes ‘authorship.’ The further question to be considered is whether there has been a fixation. If the images and sounds to be broadcast are first recorded (on a video tape, film, etc.) and then transmitted, the recorded work would be considered a ‘motion*211 picture’ subject to statutory protection against unauthorized reproduction or retransmission of the broadcast. If the program content is transmitted live to the public while being recorded at the same time, the case would be treated the same; the copyright owner would not be forced to rely on common law rather than statutory rights in proceeding against an infringing user of the live broadcast. Thus, assuming it is copyrightable—as a ‘motion picture’ or ‘sound recording,’ for example—the content of a live transmission should be regarded as fixed and should, be accorded statutory protection if it is being recorded simultaneously with its transmission. On the other hand, the definition of ‘fixation’ would exclude from the concept purely evanescent or transient reproductions such as those projected briefly on a screen, shown electronically on a television or other cathode ray tube, or captured momentarily in the ‘memory’ of a computer.
H.R.Rep. No. 1476 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5665-66 (emphasis added). Thus, Congress has made clear that copyright protection extends to live transmissions of sporting events when they are recorded simultaneously with transmission. Given this protection under the Act, a live broadcast of a football game is protected if a videotape is being made simultaneously with the transmission. See Detroit Lions,
Here, it is uncontested that the live transmissions of NFL football games were recorded simultaneously with transmission.
Alternatively, the Football Club argues that, even if the telecasts had been copyrightable, the network could not possibly have paid the NFL copyright royalties for the use of the copyrighted work because the network, not the NFL, authored the actual game telecast and therefore owned the copyrights on those telecasts. While we agree with the Football Club that before a person can derive income from copyright royalties, he must have an ownership interest in the property whose licensing or sale gives rise to the income, authorship simply is not, despite the Football Club’s argument to the contrary, an indispensable requisite of copyright ownership.
Under the Act, ownership of a copyright “vests initially in the author or authors of the work,” id. § 201(a), but an author may transfer all or any part of his ownership at any time, id. §§ 201(d), 204. The law attempts to foster creation by giving
(1) The ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law....
(2) Any of the exclusive rights comprised in a copyright, including any subdivision of any of the rights specified by section 106, may be transferred as provided by clause (1) and owned separately. The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title.
17 U.S.C. § 201(d) (emphasis added).
As one of the five rights attendant to copyright, the right to “perform” an audiovisual work means the right “to show its images in any sequence or to make the sounds accompanying it audible.” 17 U.S.C. § 101. Encompassed within the right to perform is the right to broadcast an audiovisual work. See Baltimore Orioles v. Major League Baseball Players Assoc.,
In arguing that the networks were the owners of the copyrights on NFL games at issue in the instant case, the Football Club focuses solely on the language in § 102 stating that “the copyright vests originally in the author.” This argument, however, relies on far too narrow a reading of the Act and unduly restricts copyright ownership to authors of original works. Although ownership may vest initially in the author, “the owner will be the present assignee in the chain of title from the author.” Paul Goldstein, Copyright § 4.4.1 (2d ed. 2000 & 2002 Supp.); see In re Napster, Inc. Copyright Litigation,
The requirements for transferring copyright ownership are quite simple. “[I]f the copyright holder agrees to transfer ownership to another party, that party must get the copyright holder to sign a piece of paper saying so. It doesn’t have to be a Magna Carta; a one-line pro forma statement will do.”
Given these requirements, our review of the Network Contracts reveals that the networks clearly assigned to the NFL copyright ownership of all the live telecasts of NFL football games.
Finally, the Football Club contends that even if the NFL owned the copyright on the live telecasts of NFL games, the media receipts simply did not constitute royalty payments. Although neither the Act, the Philadelphia Code, or the BPT Regulations define the term “royalty,” that term commonly refers to compensation for the use of, or right to use of, works protected by copyright.
Here, having transferred to the networks the exclusive right to broadcast the live telecast of NFL football games, the NFL received scheduled payments in the form of media receipts. In other words, the media receipts were payment for the networks’ use of the NFL’s intellectual property that was protected by copyright. See Rohmer v. Comm’r of Internal Revenue,
Based on the above analysis, we agree with the Commonwealth Court that the Football Club’s media receipts were subject to the gross receipts portion of the BPT as copyright royalties received from the licensing of a property right, namely, the exclusive right to broadcast NFL football games.
III. COMMERCE CLAUSE
The Football Club contends that, even if the Court finds that the media receipts were taxable as copyright royalties,
In Complete Auto Transit, Inc. v. Brady,
1) is applied to an activity with a substantial nexus with the taxing state;
2) is fairly apportioned;
3) does not discriminate against interstate commerce; and
4) is fairly related to benefits provided by the state.
Id. at 279,
The “central purpose behind the apportionment requirement is to ensure that each state taxes only its fair share of an interstate transaction.” Goldberg v. Sweet,
As a threshold argument, the City asserts that apportionment is not even necessary in the instant case because the BPT, as a gross receipts tax upon the privilege of doing business, is exempt from the Commerce Clause’s apportionment requirement. We disagree.
As a general rule, gross receipts taxes imposed upon receipts from interstate commerce are prohibited unless the tax is apportioned to the taxpayer’s activities in the state. See generally Laurence H. Tribe, American Constitutional Law
In a trio of cases involving the State of Washington’s business and occupation tax, which was imposed upon the gross receipts received by a business from in-state selling or manufacturing, the Supreme Court analogized a gross receipts tax to a sales tax on the basis that both types of tax tend to measure the gross proceeds of in-state business activity. See Tyler Pipe,
In assessing the Football Club’s BPT liability, the City relied on BPT Regulation 322, which provides that where a taxpayer maintains its commercial domicile in Philadelphia, all copyright royalties received by the taxpayer are to be included
The Football Club also argues, however, that by imposing the BPT upon 100% of the media receipts, the City violated the external consistency test because it taxed business activity that occurred in other taxing jurisdictions. We agree.
The external consistency requirement is a subjective test that asks whether a state taxed only that “portion of the revenues from the interstate activity which reasonably reflects the instate component of the activity being taxed.” Goldberg,
Applying this standard here, we find that the Football Club has demonstrated by clear and cogent evidence that the City’s imposition of the BPT in the instant case violated the Commerce Clause. The City’s levy on 100% of the Football Club’s media receipts, when half of the Eagles Team’s football games were telecast from NFL venues outside of Philadelphia, was inherently arbitrary and had no rational relationship to the Football Club’s business activity that occurred in Philadelphia. Accord City of Winchester v. American Woodmark Corp.,
In nevertheless concluding below that there was no failure of external consistency, the Commonwealth Court found that the City had an economic justification for taxing 100% of the Football Club’s copyright royalties, i.e., the media receipts. See Philadelphia Eagles Football Club,
In the first instance, the Commonwealth Court’s decision fails to properly identify the source of the underlying activity that generated the media receipts here. Surprisingly, the Commonwealth Court did not even recognize where the football games were played and broadcast from, concluding instead that the “economic activities of playing football, recording and broadcasting the football games ... take place in Philadelphia.” Philadelphia Eagles,
The Commonwealth Court further erred in concluding that all income from intangible personal property must be allocated to the domicile of the taxpayer. In reaching that •conclusion, the Commonwealth Court apparently mistook the external consistency test as asking whether the City had a justification for taxing any of the media receipts, rather than whether the City could fairly lay claim to all of the media receipts. See Jefferson Lines,
Thus, we disagree with the Commonwealth Court’s conclusion that the imposition of the BPT in the instant matter was externally consistent, and instead find that it was grossly disproportionate to the activity that actually occurred in the City. Rather than taxing 100% of the media receipts, the City should have apportioned the tax to exclude from the gross receipts calculation of the BPT the substantial media receipts attributable to the one out of every two football games that were played by the Eagles Team in, and telecast from, other taxing jurisdictions.
IV. CONCLUSION
For the reasons outlined above, we agree with that portion of the Commonwealth Court’s decision holding that the Football Club’s media receipts received pursuant to the Network Contracts were subject to assessment under the gross receipts component of the BPT as copyright royalties, but disagree with that portion of the decision holding that the Commerce Clause does not require apportionment of the media receipts. Accordingly, we reverse and remand the matter to the Court of Common Pleas of Philadelphia County to apportion the media receipts in a manner consistent with this opinion. See Commonwealth v. General Foods Corp.,
Notes
. Act of May 30, 1984, P.L. 345, No. 69, as amended, 53 P.S. §§ 16181-16193.
. The BPT succeeded both the General Business Tax and the Mercantile License Tax in Philadelphia. The Code incorporated essentially identical provisions as those contained in the Tax Reform Act, and the City subsequently enacted additional provisions and amendments pursuant to its authority under the Tax Reform Act. See 53 P.S. §§ 16183, 16184; Philadelphia Code §§ 19-2601—19-2608.
. Section 19-2603(3) of the Code further delineates the individuals and entities subject to the BPT, providing that:
Any person having an active presence in the City is subject to the [BPT]. Any activity within the City by a person, through one or more employees, agents or independent contractors, that makes possible the creation, realization or continuance of contractual relationships between the person and customers located within the City, including but not limited to, the solicitation within the City by a person, through one or more employees, agents, or independent contractors,. is sufficient to constitute active presence in the City. Physical pres*199 ence (the maintenance of an office or property) in the City is not required to establish active presence in the City.
Philadelphia Code § 19-2603(3).
. Although the net income component of the BPT is not directly at issue here, gross receipts are one of the measurements of the three-factor formula used to apportion income to Philadelphia for the net income component of the BPT. See BPT Regulations § 408 (setting forth formula based on taxpayer’s property, payroll and receipts within and outside of Philadelphia). The gross receipts calculation may therefore implicate the net income component of the BPT. See id. § 408(3). With that in mind, we note that the Code requires a taxpayer to make an irrevocable election with respect to the method of calculating net income, and provides for the allocation and apportionment of net income. The Code’s definition of "net income” provides in relevant part:
(a) "Net income” shall, at the option of the taxpayer, which option shall not be revokable [sic] by the taxpayer after it has been exercised as provided for by the collector, be either:
(1) The net gain from the operation of a business, after provision for all allowable costs and expenses actually incurred in the conduct thereof, either paid or accrued in accordance with the accounting system used, without deduction of taxes based on income; or
*200 (2) The taxable income from any business activity as returned to and ascertained by the Federal Government prior to giving effect to the exclusion for dividends received and net operating loss, subject to [various deductions and adjustments],
(b) In the case of a corporation participating in the filing of a consolidated corporate return to the Federal Government, net income shall mean the income from any business activity which would have been returned to and ascertained by the Federal Government, subject, • however to any correction thereof for fraud, evasion or error as finally ascertained by the Federal Government....
(c) The collector shall establish rules and regulations and methods of apportionment and allocation and evaluation so that only that part of such net income or net operating loss which is properly attributable and allocable to the doing of business in [the City] shall be taxed hereunder. The collector may make an apportionment and allocation with due regard to the nature of the business concerned on the basis of mileage, the ratio of the taxable receipts of the taxpayer from within the city to the total receipts of the taxpayer, the ratio of the value of the tangible personal and real property owned or leased and situated in the city levying the tax to the total tangible personal and real property of the taxpayer wherever owned and situated, the ratio of the wages, salaries, commissions and other compensation paid by the taxpayer within the city levying the tax to the total wages, salaries, commissions and other compensation paid by the taxpayer, and any other method or methods of apportionment and allocation other than the foregoing, calculated to effect a fair and proper apportionment and allocation.
Philadelphia Code § 19-2601.
. Historically, the NFL has entered into arrangements with several networks for the telecast of different "packages” of NFL games. See N.T., Philadelphia Tax Review Board Hearing, 7/11/96, R.R, vol. 1, at 426a. For example, one network broadcasts Sunday afternoon games played by teams in the American Football Conference (the NFL is divided into the American Football Conference and the National Football Conference), another network broadcasts Sunday afternoon National Football Conference games, while other networks broadcast games played at night, including Monday Night Football. See Note, The DirectTV NFL Sunday Ticket: An Economic Plea for Antitrust Law Immunity, 79 Wash. U.L.Q. 287, 287-89 (Spring 2001) (discussing NFL’s contracts with various networks, and the exclusive rights to televise specific games). Under the most recent NFL broadcasting deal, the NFL signed four separate contracts with four separate networks, under which each network received exclusive rights to televise a specific package of NFL games over an eight-year period (1998-2006), in return for which the networks will pay the NFL a total of approximately eighteen billion dollars.
. The Reproduced Record on appeal here contains a single contract between the NFL and the NBC television network, which represents all of the Network Contracts involved in this matter. See NFL/NBC Contract, 2/14/91, R.R., vol. 2, at 782a-808a. At hearings before the Philadelphia Tax Review Board, the parties agreed that the NFL/NBC Contract was like a "master contract,” with the provisions of all contracts being "virtually the same,” the relevant difference being the specific financial/payment provisions, which were attached as schedules to each contract. N.T., 6/27/96, R.R., vol. 1, at 327a-329a; see N.T., 7/11/96, R.R., vol. 1, at 425a-426a (NFL vice-president of broadcasting testifying that contract with various networks were similar); see, e.g., Detroit Lions, Inc. v. Department of Treasury,
. Although the actual taxation rates for the BPT are not directly relevant to the instant appeal, to facilitate a basic understanding of the overall tax scheme, we note that for the tax year 2002, the "gross receipts” portion of the BPT is imposed at an annual rate of 2.4 mills on each dollar of the taxpayer's annual taxable receipts, and the "net income” portion of the BPT is imposed at the rate of 6.5% of the taxpayer’s taxable net income. See Philadelphia Code § 19-2604(2)(k). As to the instant case, the following tax rates were in effect during the tax years in question: 1986-88, 3.9 mills per dollar of gross receipts and 4.35% of net income; 1989-92, 3.25 mills per dollar of gross receipts and 6.5% of net income. See id. § 19-2604(b), 2604(c) & 2604(d); Football Club’s 1992 BPT Tax Return (BPT Form 598), R.R., vol. 2, at 827a-830a.
. The Football Club also sought relief for assessments of the Philadelphia City Wage Tax imposed upon Norman Braman, who owned and operated the Football Club during all the tax years relevant to the instant appeal. The Football Club further sought abatement relief for the imposition of interest and penalties. This Court granted allocatur limited to the issues addressed herein and therefore, issues regarding the Wage Tax, interest and penalties are not subject to review here. See Philadelphia Eagles Football Club, Inc. v. City of Philadelphia,
. Under the Code, receipts or portions of receipts received for any services actually performed outside the Philadelphia city limits are excluded from the BPT, as long as the services are not rendered outside the city in order to evade or avoid payment of the BPT. Philadelphia Code § 19-2601. Taxable receipts of persons making sales or rendering services both inside and outside the Philadelphia city limits are to be segregated for purposes of the imposition of the BPT. Id.
. The City’s cross appeal involved the deductibility of Mr. Braman’s aircraft expenses used for personal business and the computation of the time Mr. Braman spent in Philadelphia for Wage Tax purposes. Given the limited grant of review in the instant case, the claims raised in the City's cross appeal are not at issue here.
. Our standard of review in a tax appeal where, as here, the court of common pleas took no additional evidence, is limited to determining whether constitutional rights were violated, an error of law was committed, or the Board's findings of fact were supported by substantial evidence. 2 Pa.C.S. § 754(b). As with all questions of law, this Court’s scope of review is plenary. Ramich v. Worker’s Compensation Appeal Bd. (Schatz Electric, Inc.), 564 Pa.656,
. P.L. No. 87-331, § 1, 75 Stat. 732, codified, as amended, 15 U.S.C. §§ 1291-1294. Prior to the enactment of the SBA, collective agreements between professional sports leagues and broadcast television providers were found to be horizontal agreements in violation of the Sherman Antitrust Act. See United States v. National Football League,
. "Sponsored telecasting” under the SBA pertains only to network broadcast television (i.e., free television) and does not apply to nonexempt channels of distribution such as cable television, pay-per-view, and satellite television networks. See 15 U.S.C. § 1291; Kingray, Inc. v. NBA, Inc.,
. Along with the courts, commentators have also recognized that NFL contracts with television networks for broadcast rights involve the sale of a property right. See, e.g., Symposium, Restructuring Professional Sports Leagues, 12 Fordham Intel! Prop. Media & Ent. L.J. 413, 427 (Winter 2002) (“NFL has the ability to take the intellectual property associated with it and all of its clubs and package that for ... its television partners”); Gary R. Roberts, The Legality of the Exclusive Collective Sale of Intellectual Property Rights by Sports Leagues, 3 Va. J. Sports & Law 52, 52-59 (Spring 2001) (NFL teams collectively selling the right to televise games live involves the transfer of an intellectual property right); Stephen F. Ross, Antitrust Options to Redress Anticompetitive Restraints and Monopolistic Practices by Professional Sports Leagues, 52 Case W. Res. L.Rev. 133, 141-45 (Fall 2001) (NFL’s contracts with networks involve collective sale of valuable intellectual property rights); Robert W. McChesney, Media Made Sport: A History of Sports Coverage in the United States, in Media, Sports, and Society 65 (Lawrence A. Wenner ed., 1989) (“successful management of professional sports leagues and franchises is based on the capacity to best exploit [television] rights payments”).
. Moreover, it seems obvious that the Network Contracts would have been of little value to the networks if the right to broadcast a particular game was not an exclusive, enforceable right, and other media outlets were allowed to simultaneously broadcast the live game. See generally Gary R. Roberts, The Legality of the Exclusive Collective Sale of Intellectual Property Rights by Sports Leagues, 3 Va. J. Sports & Law 52 (Spring 2001) (discussing advertising revenues attendant to exclusive broadcast of NFL games).
. Act of Oct. 19, 1976, Pub.L. No. 94-553, 90 Stat. 2541 (effective January 1, 1978), codified as amended, 17 U.S.C. §§ 101-810. The Act expressly preempted rights under state law that are equivalent to any of the rights encompassed by a federal copyright. See 17 U.S.C. § 301.
. The full text of Section 102(a) reads as follows:
Copyright protection subsists ... in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include the following categories:
(1) literary works;
(2) musical works, including any accompanying words;
(3) dramatic works, including any accompanying music;
(4) pantomimes and choreographic works;
(5) pictorial, graphic, and sculptural works;
(6) motion pictures and other audiovisual works; and
*210 (7) sound recordings.
17 U.S.C. § 102(a) (emphasis added).
. Under the Network Contracts, the networks were required to provide the production facilities for videotaping the football games, based "on the current rate card prices.” See NFL/NBC Contract, p. 8, R.R. at 789a.
. The Football Club argues that National Basketball Association v. Motorola, Inc.,
. Section 106 provides:
Subject to sections 107 through 118, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies or phonorecords of the copyrighted work to the public by stile or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of ... motion pictures and other audiovisual works, to perform the copyrighted work publicly; and
(5) in the case of ... the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly.
17 U.S.C. § 106.
. In addition to transferring any of the bundle of rights, copyright owners may also enjoin, and seek actual or statutory damages from, anyone who violates their bundle of rights. See 17 U.S.C. §§ 501-505; see, e.g., id. § 501(b) ("The legal or beneficial owner of an exclusive right under a copyright is entitled ... to institute an action for any infringement of that particular right committed while he or she is the owner of it”). See also id. § 411 (setting forth procedure for providing
. Generally, an author has greater rights than one who acquires a copyright through an assignment. For example, the author has the right to terminate all transfers of ownership after 35 years. 17 U.S.C. § 203. This right is nontransferable and can only be exercised by the author or his/her heirs. Id. The author’s right of termination is intended to counter the "unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s value until it has been exploited.” H.R.Rep. No. 94-1476 (1976), reprinted in 1916 U.S.C.C.A.N. 5659, 5740.
. Notably, the related federal regulations provide that a copyright claimant is either "[the] author of the work” or "[a] person or organization that has obtained ownership of all rights under the copyright initially belonging to the author.” 37 C.F.R. § 202.3(a)(3). The latter category includes a person or organization that has obtained, from the author or someone in the line of title, “the contractual right to claim legal title to the copyright in an application for copyright registration.” Id. § 202.3(a)(3) n. 1.
. The Act instructs that "a transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.” 17 U.S.C. § 204(a). In addition, courts will uphold the validity of an oral agreement to transfer copyright ownership where the parties subsequently memorialize the oral agreement and agree as to the contents of that writing. See Robert A. Kreiss, The “In Writing” Requirement for Copyright and Patent Transfers: Are the Circuits in
. A fundamental rule in construing a contract is to ascertain and give effect to the intent of the contracting parties. See Shovel Transfer & Storage, Inc. v. Pennsylvania Liquor Control Bd.,
. Notably, some sixty-five years ago a federal court sitting in Pennsylvania recognized that contracts between sports teams and broadcasters involve the transfer of a property right. See Pittsburgh Athletic Co. v. KQV Broadcasting Co.,
. Any person who has watched an NFL game on television is familiar with this announcement and can attest that it is provided during each and every NFL telecast.
. See also PrimeTime 24 Joint Venture,
. We note our disagreement with the Commonwealth Court below to the extent that it analogized the network telecasts to "works for hire.” A "work for hire” is created when a specific type of work is specially commissioned from the artist by the hiring party or when the artist is an employee of the party claiming ownership. See 17 U.S.C. §§ 101, 201. The "work for hire” designation is legally significant because the hiring party or the employer is considered to be the author of the work, and thereby has greater rights than one who obtains copyright ownership by assignment. See supra note 22. In addition to statutory “work for hire” situations, a party may also obtain authorship by agreement of the parties. See In re Napster,
We agree with the Football Club that there was no evidence or argument presented to support a conclusion that the instant case involved "works for hire.” It is also clear that the parties did not specifically designate the NFL as "author” of the telecasts. Given our analysis and conclusions set forth above, however, the Commonwealth Court's single reference to the Act’s "work for hire” provisions is of no moment to the instant appeal.
. Under the Copyright Act of 1909, the predecessor to the current Act, copyright was regarded as an indivisible and single bundle of rights. The individual rights comprising that bundle could not be separately owned and could only be assigned as a whole. See Jim Henson Productions, Inc. v. John T. Brady & Associates, Inc.,
. When words of a statute are not defined, we are guided by the principles set forth in the Statutory Construction Act, which provide that such words shall be construed according to their common and approved usage. 1 Pa.C.S. § 1903. While the Statutory Construction Act is not expressly applicable to the construction of local ordinances, the principles contained therein are nevertheless useful. The objective of statutory construction is to determine the legislative intent. Council of Middletown Township v. Benham,
. The Commerce Clause states that “Congress shall have Power ... [to] regulate Commerce with foreign nations, and among the several States....” U.S. Const., art. I, § 8, cl. 3.
. We note that two organizations, the Committee on State Taxation and the Pennsylvania Chamber of Business and Industry, provided amicus curiae briefs in support of the Football Club, limiting their arguments solely to the issue of whether the City’s imposition of the BPT in this case violated the Commerce Clause.
. In Complete Auto, a taxpayer challenged the State of Mississippi's franchise tax on the privilege of operating a business within the state. The tax was assessed equally on all gross income derived from transportation for hire within Mississippi but the taxpayer, who transported cars manufactured outside of Mississippi to dealers within the state, argued that Mississippi had illegally taxed the privilege of engaging in
. The Supreme Court has explained that:
A sale of goods is most readily viewed as a discrete event facilitated by the laws and amenities of the place of sale, and the transaction itself does not readily reveal the extent to which completed or anticipated interstate activity affects the value on which a buyer is taxed. We have therefore consistently approved taxation of sales without any division of the tax base among different States, and have instead held such taxes properly measurable by the gross charge for the purchase, regardless of any activity outside the taxing jurisdiction that might have preceded the sale or might occur in the future.
Jefferson Lines,
. Tax commentators hailed the Supreme Court’s decision in Jefferson Lines for breaking the “misconceived analogy” between sales taxes and gross receipts taxes. See Piper & Eggen, Gross Receipts Taxes: General Principles, supra, at 1610:0008a.
While Jefferson Lines sustained states’ power to impose unapportioned retail sales taxes on the sale of services involving interstate activities, it strengthened taxpayers' ability to assert the position that gross receipts taxes imposed on business activity must be fairly apportioned if they are measured by receipts from interstate business activity. By drawing a sharp line between gross receipts taxes and retail sales taxes and characterizing the gross receipts tax in Central Greyhound Lines, Inc. v. Mealey, [334 U.S. 653 ,68 S.Ct. 1260 (1948),] as akin to an income tax, the Court has called into question some of its earlier decisions that approved, with little analysis, unapportioned gross receipts taxes merely because they were imposed on a “local” subject and could loosely be analogized to retail sales taxes.
Jerome R. Hellerstein & Walter Hellerstein, State Taxation ¶ 18.08[5], at 18-65 to -66 (3d ed.1998) (footnote omitted) (emphasis added).
In addition, since Jefferson Lines, other jurisdictions have recognized taxpayers’ rights to apportionment of a gross receipts tax, just like all other forms of taxation upon income. See, e.g. Polychrome Int'l Corp. v. Krigger,5 F.3d 1522 , 1540 (3d Cir.1993) ("any tax—including one imposed on, or measured by, gross receipts from interstate and foreign commerce—must be apportioned to reflect only that business activity attributable to intrastate commerce”); City of Winchester v. American Woodmark Corp.,252 Va. 98 ,471 S.E.2d 495 , 495, 498 (1996) (recognizing taxpayers’ right to apportionment of a gross receipts tax); Southern Pacific Transp. Co. v. Arizona, Dep’t of Revenue,202 Ariz. 326 ,44 P.3d 1006 , 1014 (2002) (“In our view, Jefferson Lines compels the view that gross receipts taxes ... must be apportioned to comply with the ... Commerce Clause.”); see generally, Hellerstein & Hellerstein, State Taxation, ¶ 18.08[5],
. In a related argument, the City asserts that a business privilege tax, as a distinct type of tax on business receipts, need not be apportioned. While acknowledging that the U.S. Supreme Court’s Commerce Clause jurisprudence mandates fair apportionment, the City argues that a business privilege tax is distinguishable from other forms of taxation on
. While we agree with the conclusion reached by the Commonwealth Court as to internal consistency, we note that the Commonwealth Court misinterpreted Complete Auto by requiring the Football Club to present evidence that it was actually taxed in other jurisdictions. Philadelphia Eagles,
. Although not part of any constitutional test, the U.S. Supreme Court has analyzed tax discrepancies under the external consistency test on a percentage basis. See, e.g., Container Corp. of America v. Franchise Tax Board,
. Although the Tax Review Board found that only 50% of the Football Club's receipts should have been subjected to the gross receipts portion of the BPT, this conclusion was based upon the Board’s erroneous finding that the media receipts were fees for services rendered and therefore, we cannot simply reinstate the Board’s decision.
. We recognize, of course, that if we were to conclude that the BPT is externally consistent, as the Commonwealth Court did, all multi-jurisdictional businesses with a presence in Philadelphia, not just the Football Club, would be subject to the threat of duplicative taxation. As such, we agree with the argument proffered by amicus Pennsylvania Chamber of Business and Industry, namely, that such a result would discourage business in Philadelphia, and would also have a chilling effect on all Pennsylvania business. Business activities, a fraction of which should be taxable by the City, would instead be taxed twice. The effect of burdening businesses with such tax liabilities would make Philadelphia an unwelcome destination for new businesses, would discourage existing business from expanding and, in fact, would encourage businesses to leave Philadelphia altogether.
. The City argues that the Commonwealth Court properly determined that the City’s allocation of 100% of the Football Club’s media receipts to Philadelphia satisfied the external consistency test for fair apportionment because, according to the City, "the proportion of NFL media receipts allocated to the Eagles (and taxed by Philadelphia) is the same as the proportion of total NFL games played in Philadelphia.” Brief for Appellee at 8; see id. at 21. However, this argument focuses on how much of the NFL’s total receipts are taxable in Philadelphia as represented by the share of NFL games that were played in Philadelphia, instead of the proper inquiry, which involves determining where the Eagles Team earned its share of the NFL media receipts and calculating the portion of the Football Club’s media receipts that were taxable in Philadelphia.
Even if we were to focus on the total number of NFL football games, as the City urges us to do, the City’s argument completely ignores the fact that two teams played in each football game that was telecast and generated the media receipts, not just one team. Again, there is simply no support in the record for the City’s assumption that the Football Club earned 100% of its annual media receipts from the eight football games played in and broadcast from Philadelphia each year.
. Nevertheless, the City asserts that Spielvogel, Inc. v. Township of Cheltenham,
. In a related argument, the City asserts that its assessment of 100% of the Football Club’s receipts was constitutional because it was done in accordance with Regulation 322, which provides that where a taxpayer maintains its commercial domicile in Philadelphia, "all patent, copyright, and trademark royalties received are to be included in the measure of the tax,” unless “attributable to business conducted at a place of business regularly maintained by the taxpayer outside of Philadelphia.” BPT Regulations § 322. The City claims that because the Football Club was domiciled in Philadelphia, and failed to show that it maintained a regular place of business elsewhere, the City properly levied the BPT upon. 100% of the media receipts under Regulation 322. However, the fact that the City created such a rule for its own regulations does not exempt the City from adhering to the constitutional mandate to fairly apportion revenue generated from interstate business activities. Just as the City seeks to collect its fair share of revenue from businesses operating in its jurisdiction, whether or not a particular business actually maintains an office in Philadelphia, it cannot deny a taxpayer "the right to a division of the tax base, merely because the taxpayer has not established an office outside the state, if the taxpayer is carrying on other activities ... that will subject it to income tax in those other states.” Hellerstein & Hellerstein, 2 State Taxation, supra, ¶ 8.02[4][c],
. We emphasize that the City’s application of Regulation 322, and not the BPT in its entirety, violated the external consistency test. The BPT contains an explicit apportionment formula instituting a geographical limitation on the gross receipts portion of the BPT, see Philadelphia Code § 19-2601 ("taxable receipts” limited to those receipts earned in Philadelphia), but Regulation 322 does not contain a corresponding limitation. By employing Regulation 322 to tax revenues earned from the live broadcasts originating outside Philadelphia, the City taxed beyond the borders of its jurisdiction, and the City’s imposition of the BPT in this manner was not rationally related to its power and interest. Despite the City’s assertion that there is “no rational basis” for limiting the imposition of the BPT to one-half of the Eagles Team's games, we
Concurrence Opinion
CONCURRING OPINION
The majority’s conclusion that the media receipts constituted copyright royalties is not without some appeal, and finds support in published opinions from two other jurisdictions’ intermediate appellate courts. See Cincinnati Bengals, Inc. v. Papania,
While I agree with the majority that the monies at issue are not fees for services rendered, see Majority Opinion, slip op. at 10-13, in light of the sui generis nature of the networks’ activities in both authoring and broadcasting the telecasts of the games, I believe that the media receipts are best understood as compensation for the exclusive right to simultaneously create and use intellectual property (the telecasts of the games) ultimately subject to copyright protection. They are unlike royalties in that the benefit obtained by the networks in return for such monies is not the utilization of intellectual property already created, but the exclusive privilege of capturing images of others’ activities and thereby creating, in the first instance, the subject works. The consideration provided in return for such right consists of the fees paid as well as the prospective transfer of copyrights to the NFL; upon broad
For these reasons, I would hold that the media receipts were not copyright royalties for purposes of Section 322 of Philadelphia’s Business Privilege Tax. Since non-royalty revenues are only assessed to the extent the underlying business activities take place within the city, I concur in the Court’s ultimate determination that, for the tax years at issue, the media receipts should be apportioned accordingly.
. A copyright comes into existence when a work of authorship is created and fixed in some tangible medium of expression. See 17 U.S.C. § 102(a); see also § 302(a) (providing that copyright in a work subsists "from its creation”); Rodrigue v. Rodrigue,
. In this regard, I note that the court in Detroit Lions relied upon Commissioner of Internal Revenue v. Affiliated Enterprises,
Concurrence Opinion
CONCURRING AND DISSENTING OPINION
I agree with the lead opinion that the Commonwealth Court correctly found that the Philadelphia Eagles Football Club’s media receipts resulting from the television broadcast of football games were subject to the City of Philadelphia’s Business Privilege Tax (BPT) because the media receipts constitute copyright royalties for the licensing of a property right. I respectfully disagree, however, with the lead opinion’s conclusion that the City’s failure to apportion those media receipts based upon the percentage of games the Football Club plays in Philadelphia violates the Commerce Clause. Because I would affirm the Commonwealth Court’s holding that the City’s taxation of the entirety of the media receipts did not violate the Commerce Clause, I respectfully dissent.
As the plurality opinion notes, in the years relevant to this appeal, the Football Club was one of twenty-eight member
The first part of the lower court’s holding that the media receipts are properly taxed where the taxpayer maintains its commercial domicile is amply supported by the tax regulations themselves and long-standing precedent of this Court. The pertinent regulation specifically provides that royalties are included in the net income of a business domiciled in Philadelphia:
(a) “Net income” shall, at the option of the taxpayer, which option shall not be revocable [sic] by the taxpayer after it has been exercised as provided by the collector, be either:
(1) The net gain from the operation of a business, after provision for all allowable costs and expenses actually incurred in the conduct thereof, where a taxpayer, whether a domestic or foreign corporation or any other type of business entity, maintains its commercial domicile in Philadelphia, all patent, copyright and trademark royalties received are to be included in the measure of tax unless attributable to business conducted at a place of business regularly maintained by the taxpayer outside of Philadelphia.
City of Philadelphia Business Privilege Tax Regulations § 322 (emphasis added). More than a century ago, this Court held that the situs of intangible personal property is the domicile of the owner or taxpayer. Commonwealth v. Pennsylvania Coal Co.,
Turning to the Commerce Clause question, I agree with the Commonwealth Court’s holding that the media receipts paid to the Philadelphia Eagles organization need not be subdivided and apportioned, for purposes of the Philadelphia BPT, based upon where the Football Club’s games are played. As the lead opinion notes, the Commerce Clause issue is governed by the United States Supreme Court’s four-prong test set forth in Complete Auto Transit v. Brady,
The question of external consistency is resolved by determining whether a state taxes only that portion of the revenues fairly attributable to economic activity within the taxing state. Id. As the Commonwealth Court concluded, the taxing regulation at issue here, as well as established case law, provide that
The plurality’s focus upon game-day to further subdivide the one twenty-eighth share of the media receipts each NFL club receives not only ignores the deemed situs of the copyrights but is also, in my view, both artificial and impractical. Even if game-day is deemed the proper focus, it is indisputable that l/28th of the NFL activity generating the media royalties occurs in Philadelphia since other cities’ NFL teams play in Philadelphia at the Eagles’ home games. Thus, Philadelphia properly may tax up to l/28th of the media royalties paid to the NFL—not coincidentally, the very amount paid to the Eagles Football Club, which hosted l/28th of NFL regular season games. The plurality’s approach would require the City of Philadelphia to tax that portion of media receipts of other NFL teams attributable to games they played in Philadelphia (one-sixteenth of their media receipts for each game they played here), while assuming that other NFL cities would be permitted to tax visiting NFL teams’ royalties in the same fashion. Calculation and collection of those taxes would require considerable effort on the part of the cities in which NFL games are played, inevitably would result in disputes
Because I believe the BPT was properly assessed against the Eagles Football Club by the City of Philadelphia based upon the media royalties actually paid to it in its domicile, I would affirm the Commonwealth Court’s decision.