MADRAS HIGH COURT DECISION IN NOVEX VS DXC- WILL IT CHANGE THE WAY COPYRIGHT LICENSING BUSINESS IS CONDUCTED IN INDIA? IMPACT AND ANALYSIS (PART 1)

The Madras High Court in the case of Novex Communications Pvt. Ltd vs DXC Technology Pvt. Ltd & Anr has held that the business of issuing licenses in any work in which copyright subsists can only be done by a registered copyright society if the work is incorporated in a cinematograph film or a sound recording.

It held “There is no doubt true that an owner need not necessarily join a copyright society. The first proviso to Section 33 makes it clear that the right of an owner to issue licenses, in his individual capacity, remains unimpacted, subject to the rider that such a right must be consistent with his obligations as a member of any copyright society. However, once the grant of license moves from the owner in his individual capacity, and transcends into the realm of a business, Section 33(1) and/or the second proviso applies. The legislative intent is manifestly clear that the business of licensing must be routed only through a copyright society”.

Read the judgement here.

Context:

Novex Communications Private Limited, in the capacity of an assignee of copyright or as agent of sound recording owner issues licenses for on ground public performance  (such as hotels, events, etc).

For instance, few music labels have entered into assignment agreements with Novex assigning the on ground public performance right to Novex. Others like YRF Music has appointed Novex in the capacity of an agent.

Novex had filed a copyright infringement suit in Madras High Court against DXC Technology Pvt. Ltd. and Cognisant Technologies Solutions India Pvt. Ltd, alleging that despite Novex being the owner of the on ground performance rights of certain labels, the defendants played their songs without obtaining a license from Novex.

The preliminary issue raised by the defendants before the Court was that the business activities of Novex will amount to carrying on the business of issuing or granting licenses which is statutorily barred under 33 of the Copyright Act, as Novex is admittedly not a copyright society or a member of any copyright society.

The primary issue before the court thus was “Whether Novex is legally permitted to issue or grant license under the Copyright Act without being the copyright society under the Copyright Act as contemplated under Section 33 of the Copyright Act, 1957?”

What does Section 33(1) of the Copyright Act provide?

“Section 33 Registration of Copyright society.—

“(1) No person or association of persons shall, after coming into force of the Copyright (Amendment) Act, 1994 (38 of 1994) commence or, carry on the business of issuing or granting licences in respect of any work in which copyright subsists or in respect of any other rights conferred by this Act except under or in accordance with the registration granted under sub-section (3):

Provided that an owner of copyright shall, in his individual capacity, continue to have the right to grant licences in respect of his own works consistent with his obligations as a member of the registered copyright society:

Provided further that the business of issuing or granting licence in respect of literary, dramatic, musical and artistic works incorporated in a cinematograph films or sound recordings shall be carried out only through a copyright society duly registered under this Act:…”

Highlights of the Judgement:

• The Court distinguished the right of a copyright owner in his individual capacity from that of a commercial enterprise involved in the business of issuing licenses thereby interpreting that the former is permitted to issue licenses as a copyright owner, but the latter can do only if it is a registered copyright society. [E.g., A music label as an owner of copyright would be entitled to issue licenses under Section 30, however an entity like Novex, PPL, etc. would fall foul of Section 33 second proviso since they are not a registered copyright society].
• While ruling that despite being an assignee of copyright, Novex cannot carry out the business of issuing licenses, the Court observed that:
  • “It is no doubt true that the assignee becomes an owner by virtue of Section 18(2) of the Act and is, therefore, legally entitled to issue licenses under Section 30 as the owner of the copyright. Section 30 merely recognises the right of the owner to grant a license and does not make a distinction between individuals and business entities in the matter of granting license. That distinction is, however, at the heart of Section 33 which clamps a prohibition on the “business of issuing or granting licenses” except through copyright societies [Clause (1) and second proviso to Section 33], while retaining the right of the owner, in his individual capacity, to exercise the right of licensing his works conferred on him by Sections 18(2) and 30 of the Act.” (Para 28).
  • “The right of an owner, in his individual capacity, to exploit a right by issuing a license remains untouched. However, when it comes to the “business” i.e., a commercial enterprise of issuing licenses, the law, as it presently stands, requires it to be routed only through a copyright society registered under Section 33(3) of the Act”. (Para 29)
  • “The argument that the second proviso interferes with the right of the copyright owner under Sections 18 and 30 of the Act is clearly misconceived. Section 33(1) and its second proviso do not touch upon the right of an owner, nor does it debar him from dealing with the business of issuing licenses for his works in his individual capacity. It merely regulates the mode and manner of its exploitation through the business of licensing by routing it through a copyright society”. (Para 31).
• While referring to the legislative intent behind the Copyright Amendment Act, 2012 in amending Section 33 to ensure that royalties are payable to authors, the Court held “In the backdrop of the aforesaid, it is clear that the mischief preceding the Copyright (Amendment) Act, 2012 was that copyright societies had been taken over by owners, relegating authors and composers to the background. Secondly, by virtue of Sections 17 and 18, authors and composers had absolutely no share in the royalties. The Copyright Amendment Act, 2012 sought to remedy this by first, undoing the unfairness of the earlier regime by making authors and composers on par with owners in the matter of administration of copyright societies. This was done by amending Section 35. The next step was to amend Section 18 & 19 to provide for equal share of the royalties to the author. Section 33 was then amended to ensure that the business of issuing licenses in copyrights were routed only through copyright societies so that the aggregate of the royalties so collected, could be shared equally between the authors and composers on the one hand and the owners of the copyright on the other. It is therefore impossible to accede to the argument of the learned counsel for the plaintiff that notwithstanding the clear mandate of Section 33(1) and its second proviso, the business of licensing works in sound recordings can be done by business entities like the plaintiff, dehors the aforesaid provisions. Such an interpretation would defeat the very purpose of the 2012 Amendment and would be obfuscated in as much it would divert the revenue from royalties which were to be pooled in through copyright societies, to be shared equally between the owner and author”. (Para 36)
• The Court disagreed with the view taken by Delhi High Court in the case of Novex Communications Private Limited v. Lemon Tree Hotels Limited wherein the Delhi High Court had held that second Proviso to Section 33(1) talks of issuing or granting of license with respect to the musical work in sound recordings, it is only for the musical work in the sound recording and not the sound recording itself. The Delhi High Court had ruled that if second proviso is to apply to sound recording and cinematographic films and not just underlying works therein, it would nullify or render otiose the first proviso to Section 33(1).

Impact on the Media and Entertainment industry:

• Currently there are several entities which are carrying on the business of issuing licenses in songs (sound recording rights). These also include entities involved in digital distribution of music. Going by the interpretation of the Madras High Court, all such entities are not entitled to conduct business of issuing licenses other than through a registered copyright society.
• In relation to sound recording rights, the only registered copyright society is Recorded Music Performance Limited (RMPL). The application of PPL (Phonographic Performance Limited) was rejected by the Government and the challenge by PPL is pending before the Delhi High Court. In the absence of any other registered copyright society for sound recording rights, the Madras High Court decision would result in either sound recording owners issuing licenses independently or result in rights being assigned to only copyright societies such as RMPL.
• The decision does not impact the functioning of IPRS as the position qua IPRS was not under debate. If anything, it adds further clarity that the business of issuing licenses in underlying musical and literary works in sound recordings and cinematographic films will need to be routed through IPRS.
• There is currently no copyright society registered for cinematographic films. Applying the same principle, it would have to be seen as to how would entities which are in the business of issuing licenses in cinematographic films conduct business in the absence of a registered copyright society.

While we would be dealing with a detailed analysis of the judgement in the second part to this post, it would be relevant to pose certain questions:

• How would doing business of issuing licenses in sound recordings and cinematograph films fulfil the legislative intent of royalty payment to authors of underlying works as a copyright society for sound recording/ cinematograph film is not required to have author of underlying works as its members?
• Section 33 (3) proviso provides that the Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of work. Moreover, there is currently no transparency provided in the status of applications filed before the Government on status of copyright societies applications and their registration. For instance, SRAI (Screenwriters Rights Association of India) has not yet received registration as a copyright society. In the absence of there being a time bound process for rejection/ acceptance of applications as a copyright society, the question arises whether the interpretation of the Madras High Court on Section 33 of the Copyright Act mandating business of issuing licenses through a registered copyright society be in the teeth of freedom of trade (Article 19(1)(g) as well as freedom of not being a member of an association (Article 19 (1) (c) of the Constitution.
• Should there be more transparency in the Government functioning in relation to copyright society applications requiring the status to be made public in a time bound manner?
• What happens to such business entities who are in the business of issuing licenses in cinematograph films in the absence of there being a registered copyright society for the same? 

We would be dealing with the arguments raised by the parties and our analysis on the judgement in the second part to this post.

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