A critique of the provisions on Copyright Societies under the Copyright Act, 1957

Introduction

The Copyright Act, 1957 (Copyright Act) governs the law relating to copyright in India. The Copyright (Amendment) Act, 2012 (2012 Amendment) was enacted with an underlying objective to establish a just and equitable framework of copyright administration and revenue sharing for protecting rights of authors of works incorporated in sound recordings and films.

The 2012 Amendment inserted onerous burdens [in addition to the obligations set out by the Copyright (Amendment) Act, 1994 (1994 Amendment)] with respect to “issuing or granting licence” in respect of the said works. Added by the 1994 Amendment, Section 33 of the Act stipulated that only copyright societies can carry on the business of issuing or granting copyright licences. As part of the 2012 Amendment, Section 33(3-A) was inserted which lays down that to be a valid copyright society an entity (carrying on the business of issuing or granting copyright licences) must newly register itself under Section 33 within a year from the commencement of 2012 Amendment. Thus, if a copyright society existed by virtue of a pre-2012 registration, there would not be a bar under Section 33 operating on such a society unless there was a new registration within one year after the aforesaid enactment. At the same time, no punishment was prescribed for non-registration as a copyright society in the given time.

Under the amended Copyright Act, a copyright society has significant obligations regarding submitting reports of membership, revenue sharing under Section 36 and compliance with a tariff scheme order as passed by the Copyright Board under Section 33-A(2) set out by the Copyright Board with respect to different categories of works. Any false report submission is punishable under Section 67.

Apart from this, a copyright society must ensure protection of the interest of its members and operate transparently (Section 35). Newly inserted Section 33(3-A) also grants the Central Government prerogative to withhold renewal of registration if a copyright society does not share control and royalty with the authors of works. Thus, the intent of the legislature to benefit authors with low bargaining power vis-à-vis major production companies who own the capital required for production and marketing of creative works is very clear.

Problems with the Amendments of 1994 and 2012

There are always two sides of a coin. While the Government’s intent to bring in the amendments is laudable, certain unfortunate discrepancies in the 1994 and 2012 Amendments seriously jeopardise rights and interests of non-author owners of copyright in creative works.  The 1994 Amendment inserted Section 33 which mandates that only copyright societies can carry on “the business of issuing or granting licences” in respect of creative works. However, it is silent about the matter of assignment of rights in copyrightable works. It is to be noted that Section 18 stipulates that a copyright owner/author of creative works has the right to assign copyright to any “person”.

Logically, an author can assign his copyright to a production company and the same can further assign it to other persons. In such an assignment, a copyright society is not necessary. However, Section 33 creates a specific bar on any other entity that may be assigned such rights as laid down in Section 18 to issue such licences as a copyright owner of copyrightable works. The anomaly is that due to Section 33, only a copyright society has the right to engage in business of issuance of licences, even though under the scheme of the Copyright Act, copyright owners have the right to licence a work under Section 30.  Sections 18 and 30 are provisions of the original Act. The impact upon these provisions due to the addition of Section 33 is not clarified by either the statute or its Amendments. It is not clear whether Section 33 should prevail over Sections 18 and 30 or the other way round. Resultantly, adjudication of licensing/assignment related disputes become the subject of enormous legal ambiguity.

The economic dynamics of the film and music industry necessarily require the production companies to engage third-party licensing and collecting companies as authorised agents in terms of Section 30 for issuing public performance licences or other licences and collect fees in respect thereof. Another alternative model is to assign public performance right in terms of Section 18 to the third-party licensing and collecting entities who administer the said right such as to ensure non-infringement of copyright by non-owners. The production companies invest massive capital in producing and marketing original creative content. The third-party licensing and collecting companies due to their specialisation in such tasks, undertake the huge tasks of ensuring that the copyright to the said content is not being infringed in a vast country like India.

A stellar example of such a case is Novex Communications (P) Ltd.., a company as per its website holding authorisation as agent in terms of Section 30 or assigned rights in terms of Section 18 for licensing purposes and administration of copyright. However, in terms of the 1994 and 2012 Amendments to the Act, the legal position of entities such as Novex remains under ambiguity.

A legal vacuum persists upon the rights and interests of third-party licensing and collecting entities which carry on the business of granting/issuing licences in respect of creative works. The 2012 Amendment could have clarified the statutory position. On the contrary, it has only enhanced the ambiguity by adding a new second proviso to the sub-section (1) of Section 33. As per this added proviso, the business of issuing/granting licence in respect of literary, dramatic, musical and artistic works incorporated in film or sound recording must be carried out only through a copyright society. Legally, this leaves the third-party licensing and collecting entities like Novex on an uncertain footing. Judicial pronouncements have been few and contradictory on this aspect of the Amendments, as explained hereinafter.

Interpretation by High Courts

In its order dated 29-12-2016, the Delhi High Court passed an interesting order in Event and Entertainment Management Assn. v. Union of India.[1]  The proceeding was concerned with unauthorised public performance of songs for which rights were owned by a number of third-party licensing and collecting companies and copyright societies. Novex was one among the respondents and had earlier sued several hotels to restrain them from unauthorised public performance of the said songs.

In its order, the High Court held that Novex could operate its business within the scheme of Sections 18 and 30. Therefore, it could collect licence fees from users either as a legitimate assignee or an authorised agent of the authors and producers of the said songs in terms of Section 18 or Section 30 of the Act. To support its conclusion the order relied on Leopold Cafe & Stores v. Novex Communications (P) Ltd.[2], in which it was decided by the  Bombay High Court that issuance of licences by virtue of Sections 18 and 30 is not barred by Section 33 of the Act. The Delhi High Court also held that the absence of a copyright society in terms of Section 33 did not lead to obliteration of all rights of copyright owners.

However, the irony was that in Leopold Cafe & Stores v. Novex Communications (P) Ltd.[3] the  Bombay High Court had in fact temporarily restrained Novex from carrying on the business of issuance of public performance licences based on Section 33. The said judgment temporarily prohibited Novex from issuing/granting licences and collecting licence fees in respect of “any copyrighted works” of major production companies.

Effectively, the order of the  Delhi High Court was the exact opposite of the Leopold[4]  judgment, even though former sought to rely on the latter. Therefore, the aforesaid order of the  Delhi High Court is legally vulnerable owing to the fact that it relied on the Leopold[5] judgment. The Delhi High Court’s order provides some helpful insights about the distinction between Sections 18 and 30 as against Section 33. But it lacks the thorough reasoning which can duly oppose the conclusion of the  Bombay High Court that Novex was barred from doing its business owing to Section 33.

Recently, in its final order dated 12-10-2017, in the aforesaid writ proceeding in Event and Entertainment Management Assn. v. Union of India[6], the Delhi High Court disposed of a writ petition seeking, inter alia, a writ of mandamus against the Central Government to pass an order derecognising and permanently restraining companies like Novex from collecting licence fees from the petitioner. The writ petition placed exclusive reliance on Section 33 of the Act.

The Delhi High Court refused to grant any relief to the petitioner. However, quite contradictorily, the order asserted, “Since PPL, IPRS and Novex are not registered as copyright societies, they are—by virtue of Section 33(1) of the Act—proscribed from carrying on the business of issuing or granting licences.” In other words, the Delhi High Court reached an entirely opposite conclusion about the scope of Section 33 within a span of one year. The underlying reasoning of the said order completely eclipses Sections 18 and 30 to give absolute effect to Section 33 of the Act and is also opposed to the Leopold[7] judgment of the Bombay High Court.

As a result, even though Novex remains currently operational, its business remains vulnerable to the absolute rigour of Section 33. It is still open for any High Court or the Supreme Court to restrain such companies from functioning in response to future writ petitions. It may be an understatement that it could be catastrophic for the film and music industry and arguably enable infringers to obtain windfall gains at the expense of rightful copyright owners/assignees/agents.

The Bombay High Court’s judgment in Leopold Cafe & Stores v. Novex Communications (P) Ltd.[8] is a rarity in terms of the fact that it has directly addressed the central question about the construction of Section 33 vis-à-vis Sections 18 and 30. The first and foremost point emphasised by the judgment is that these sections must be construed harmoniously. The operation of one provision must not render the others otiose or redundant. Thus, Section 33 of the Act could not be said to prohibit operation of Sections 18 and 30 of the Act.

The said judgment differentiated “business of issuing or granting licences” and the assignment/licensing envisaged by Sections 18 and 30 of the Act. In a novel understanding of Section 33, the judgment interpreted the aforesaid phrase to mean “carrying on the business of issuing or granting licences in its own name”. Thus, as per the judgment, the business of issuing of licence in one’s own name is prohibited by Section 33. The issuance of licences by an owner/authorised agent in the course of carrying on a different business, say, film production is not prohibited by Section 33 because it is allowed by Section 30 of the Act. The said judgment provides a significant insight into the interpretation of Section 33 of the Act. The principle of harmonious construction has the potential of removing all ambiguity caused by the Amendments.

However, the judgment concludes that entities like Novex were not entitled to issue licences and collect licence fees. This adverse conclusion may be unwarranted because affidavits submitted by major entertainment companies such as Shemaroo and YRF affirmed that Novex was their authorised agent in its licensing activities. Communications between Novex and entertainment companies highlighted the fact that the said parties had agreed to authorise Novex to issue licence and collect licence fees on their behalf. The licencees had disclosed that the licenced works were owned by others. Thus, Novex’s business was within the ambit of Section 30. Thus, the conclusion that Novex’s business was prohibited due to Section 33 may not be legally sound.

The judgment has made it onerous for entities like Novex to prove that their business falls under the ambit of Section 30 or Section 18. Firstly, the judgment asserts that even if the contracting parties (Novex and the entertainment companies) have made it clear in their communications that Novex is merely acting on behalf of the entertainment companies, Novex’s business cannot fall within the purview of Section 30. The judgment goes beyond Section 30 of the Act to hold that the deeds of licence must also disclose the fact of agency between the entertainment companies and entities like Novex. It is pertinent to note that Section 30 does not require any such disclosure by an authorised agent on a deed of licence.

Under Sections 186 and 187 of the Contract Act, 1872 an agency can be either expressed or implied. Even if an agency is not formulated in a particular document or not disclosed in any document, such agency can be “inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing”. It is precisely in accordance with the aforesaid provisions that Novex had contended that it was in an (implied) agency with the entertainment companies. However, the judgment seems to have narrowed the scope for such entities to prove that it operates within the confines of Section 30.

The nature of an agreement must be determined by the terms and conditions incorporated therein, as held by the Calcutta High Court in Saregama India Ltd. v. Suresh Jindal[9] and by the Delhi High Court in PVR Pictures Ltd. v. Studio 18[10].  Irrespective of the fact that the exact owners were not specifically mentioned in the licence deeds, the fact that it was stated that the copyright in the licenced works were owned by someone else itself was a clear indication of the agency of Novex. The name of the copyright owners may have been excluded for reasons of confidentiality, an important facet of transactions in a highly competitive film and music industry. If a deed has terms which by necessary implication grant licence on behalf of a copyright owner, then superficial facets like absence of names of copyright owners are immaterial. In such a situation, the licence deed would remain legally valid and binding. The Copyright Act specially covers the field of rights in creative works. The Contract Act is specifically applicable as regards contracts. Thus, Section 33 of the Copyright Act, 1957 should not be given a construction opposed to the Contract Act with respect to the deeds of licence or agency contracts.

Secondly, the judgment may have proceeded on a presumption of primacy of Section 33. The judgment asserts that Section 30 enacts a “permissive” regime. The implication of this assertion is that between Sections 30 and 33, it is the latter which should ordinarily prevail. Consequently, Section 30 is merely an exception to the general precedence of operation enjoyed by Section 33 of the Act. Thus, the necessary implication of the aforesaid assertion in the judgment is that Section 33 deserves primacy over and above Section 30. The extremely narrow scope for an entity like Novex to prove that it operates within the purview of Section 30 (the underlying reasoning of the judgment) also supports this troubling implication.

An interesting observation is made in the judgment regarding the underlying economic rationale of engaging third-party licensing and collecting companies to conduct licensing and collection of licensing fees on behalf of the copyright owners. It is more efficient for copyright owning entertainment companies to appoint an agent for ensuring that anyone using the works must have valid licences and pay due licence fees. The judgment affirms, “I very much doubt it could have been the legislative intent of Section 33 to compel every copyright owner to set up a separate division to monitor the use of its works.”

The aforesaid justification is appropriate given the fact that copyright owning entertainment companies cannot be adept in ensuring due administration of their copyright as their resources are mainly devoted to production and marketing of creative works.  Instances involving public performances in hotels, restaurants or matrimonial events provide stark examples of such a scenario. Such matters came up before the Delhi High Court in Supercassette Industries v. Nirulas Corner House (P) Ltd.[11], Indian Singers Rights Assn. v. Night Fever Club & Lounge[12] and Indian Performing Right Society Ltd. v. R. Krishnamurthy.[13]  In the aforesaid cases, third-party licensing and collecting companies were granted injunctions based on the fact that copyright infringement had been committed by unauthorised public playing of copyrighted music in hotels and restaurants. The Delhi High Court justified the grant of injunctions based on the subsistence of copyright on the works concerned and clear proof of infringement.

In fact, collecting public performance licence fees through agent companies has become a regular practice in the film and music industry. As noted by the Delhi High Court in Federation of Hotels & Restaurants Assn. of India v. Union of India[14], a customer does not enter a hotel or a restaurant to consume food and drink but also to enjoy the ambience available therein. Similarly, as observed by the Supreme Court in T.N. Kalyana Mandapam Assn. v. Union of India[15] providing marriage halls is a commercial service which includes the necessary ambience provided by hall owners. It is common knowledge that public performance of sound recordings is a major contributor to such ambience. Thus, public places like hotels, restaurants and marriage halls provide a ready audience for creative works like sound recordings. Third-party licensing and collecting entities are the bridge between the entertainment companies and this audience.

Therefore, if third-party licensing and collecting entities become non-existent, it may cause irreparable financial loss to the film and music industry by depriving it of a major source of revenue. The conflict of Section 33 vis-à-vis Sections 30 and 18 of the Act is yet to come before the Supreme Court of India for a decisive judgment. One may hope that the current ambiguity may eventually be resolved in a legally sound manner in times to come. The insights provided by the Delhi High Court in Event and Entertainment Management Assn. v. Union of India[16] and by the Bombay High Court in Leopold Cafe & Stores v. Novex Communications (P) Ltd.[17] may guide a future resolution of the ambiguity created by the Amendments to the Copyright Act. Going by these insights, the ambiguity may be better resolved on the twin principles of preservation of rights of copyright owners outside copyright societies and a harmonious statutory interpretation coupled with a sound economic reasoning.

Conclusion

As discussed above, the Amendments to the Copyright Act have given rise to significant ambiguity regarding the scope of copyright societies and subsisting rights of third-party licensors in creative works. This ambiguity has not been conclusively resolved by any judicial pronouncement till date. The few judgments of High Courts on the issue have been contradictory and indecisive, raising more questions than answers. Given that copyright litigation in India is at a developing stage, subsequent assignment/licensing disputes will likely bring the much-needed opportunity for the High Courts and possibly the Supreme Court to decisively lay down the appropriate position of law. It is expected that till the resolution of this ambiguity, third-party licensing and collecting companies will recalibrate their commercial arrangements and exercise high degree of caution in terms of strengthening the legality of their agreements to make them fully eligible for protection under Sections 18 and 30 of the Copyright Act.

 

*Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at bhumeshverma@corpcommlegal.com and Somashish, is Fifth Year B.A. LL.B. (Hons.) student, School of Law, Christ (Deemed to be University), Bangalore.

[1]    2016 SCC OnLine Del 6567.

[2]    2014 SCC OnLine Bom 4801 : (2014) 6 Bom CR 394 .

3]    Ibid.

[4]    Ibid.

[5]    Ibid.

[6]    2017 SCC OnLine Del 12740.

[7]    2014 SCC OnLine Bom 4801 : (2014) 6 Bom CR 394.

[8]    Ibid.

[9]    2006 SCC OnLine Cal 467 : AIR 2006 Cal 340.

[10]   2009 SCC OnLine Del 1878 :  (2009) 41 PTC 70.

[11]   2008 SCC OnLine Del 360 : (2008) 148 DLT 487.

[12]   2016 SCC OnLine Del 5418 : (2016) 234 DLT 22.

[13]   2011 SCC OnLine Del 4668 : (2012) 49 PTC 362.

[14]   2007 SCC OnLine Del 353 : AIR 2007 Del 137.

[15]   (2004) 5 SCC 632.

[16]   2016 SCC OnLine Del 6567.

[17]   2014 SCC OnLine Bom 4801 : (2014) 6 Bom CR 394.

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