COPYRIGHT AND THE “BUSINESS OF ISSUING LICENSES”: IP’S LEVIATHAN FROM INDIA- Analysis of the Madras HC judgment in Novex Communications Pvt. Ltd. v. DXC Technology and ors.

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In a very interesting precedent from the Madras High Court, M/s Novex Communications Pvt. Ltd., a company which sometimes acts as an “agent” and sometimes “owner” of the right to “on ground performances” of the catalogues of several music labels (contracts available on its website here), has lost its motion for infringement against defendants who were alleged to have not obtained licenses from Novex. The Madras HC has held, as a preliminary issue in a suit for permanent injunction, that the entire cause of action in the suits are misconceived since Novex has no rights to issue such licenses, given the statutory bar stipulated under Section 33 of the Copyright Act. For more on the background and the facts of the dispute, see part 1 of the post here.

It is important to firstly note the ‘rights’ which Novex claims to own and act upon. The main right, that Novex claims arises from section 14(e)(iii), i.e., the right to communicate a sound recording to the public. Assignment agreements and agency contracts on its website, indicate that various recording companies, who own such “master” rights have assigned/authorized the same to Novex, in return of a consideration, to handle “collections” through the on-ground performance/communication of its catalogue.

The main statutory provisions which came up for consideration while deciding whether Novex actually does have the statutory ability to issue such licenses, and who are the stakeholders that need to be taken care of in respect thereof are – Sections 18, 30, 33 and 35 of the Copyright Act. The Madras High Court has primarily focused its interpretation on Section 33 of the Act, however, has notably referred to these other provisions in arriving at its conclusion on the lis. 

However, before getting into Section 33, it is essential to analyze the purport of Section 30 of the Act. Section 30 provides that the “owner” of copyright in any existing work can issue licenses to use/reproduce/communicate the work in writing, themselves, or through “its agent”. This is important, as most of the labels have either appointed Novex as “authorized agents” under this section (see contract with YRF) or have assigned these set of rights (in relation to on ground performances) in the favour of Novex for some consideration (see contract with EROS). The whole idea is for these labels/ master right holders to avoid the hassles of individually issuing licenses, and rather approaching an agency which is “in the business” of issuing licenses, for a more de-centralized specialized system, based on a contractual relationship.

Now, here comes Section 33. Section 33, in its statutory language, deals with the Registration of Copyright Societies with the Central Government. The intent of this section, as can be seen from a perusal of Section 33(3) and Section 33(4), is clearly regulatory, and a step away from the lassez faire setup. The Parliament, conscious of the pitfalls of allowing private “collections” in the domain of copyright revenues and given the varied number of stakeholders involved in the communication of one song/one copyrighted work, has taken a step back from free market economics and consciously attempted to regulate the business of “issuing licenses” and tracking revenues that are received from copyrighted works. At this stage, it may seem that this comes out as a violation of the “fundamental right to trade and profession” in respect of one’s “property” (often analogized with Intellectual property, these days, albeit wrongly), however, it needs to be made clear that this fundamental right is not absolute (in the context of Copyright, see ENIL v. Super Cassettes (SC)). It is subject to regulatory constraints on business in the “interests of the general public” which would include the economic interests of the author class as well as the interests of the general public to “experience” the works, at a reasonable rate, which is “overseen” by the Central Government, in pursuance of Chapter VII of the Copyright Act.

Even in the Copyright Amendment Bill 1992, which resulted in the incorporation of Chapter VII, the Statement of Object and Reasons clearly show the regulatory intent in the “interests of the general public” which is a reasonable restriction, as per Article 19(6) of the Constitution on the fundamental rights of trade and business in Article 19(1)(g) of the Constitution. Even the “notes to clauses” to the said amendment clearly shows the following:

This clause seeks to substitute new provisions for Chapter VII to make provisions for copyright societies in respect of any kind of right and to make adequate general provision of the registration and management of such societies in the interests both of authors and of other copyright owners for whom it would be impracticable or uneconomical to license the use of their work individually to all users, or to collect fees from them, and also in the interests of general public and particularly of users of rights who may not conveniently be able to obtain licenses from individual authors or copyright holders; and thus to improve the enforcement of copyright which benefits both to the holders of rights and to general public.”

Finally, such a regulatory attitude towards works which are definitive for culture and are regulated by Copyright can even be traced to the 1957 Copyright debates, where as a justification of governmental regulation in free market exploitation of Copyright, analogies were drawn by the parliamentarians to restricting business rights in the following way:

“I may point out that in the case of property, we do not permit people to charge any rent they like; in the case of any industry, we do not permit the industrialists to make any profit they like. We restrict them. In society, the right of every individual is restricted, and likewise, the right of authors, and the rights of musicians should also be restricted.” 

Perusing Section 33 of the Act also shows that the Central Government, has statutorily, been given the responsibility to oversee the manner in which licenses are issued, and as to whether they are in consonance with the interests of the authors, owners and the general public or not. There is also a requirement for people, registered as a copyright society, responsible for issuing licenses and collecting “collections” thereto, as a sole activity – to publish their tariff schemes, and there are remedies for those who have issues with the same (tariffs), in accordance with law. The Copyright Rules also provide responsibilities qua transparency for these societies which are to issue licenses en masse.

This is where the “oversee” intent of the statute come in. The statute also provides the ability for courts to fix license rates, which again shows the regulatory intent. Finally, the manner of distribution of fees and tariffs received, is also provided and overseen, in accordance with the requirement under Section 36 of the Act to submit reports and returns, to analyze the fairness in functioning in the interest of copyright stakeholders as well as the general public.

To further buttress this intent, Section 33, sub section (1) starts with the phrase- no person or association of persons shall commence or, carry on the business of issuing or granting licenses in respect of any work in which copyright subsists, unless registered in accordance with Section 33(3). The important features here are:

1. Bar to conducting “business of issuing licenses” – a conscious regulatory bar and curb on the right under Article 19(1)(g), in the interest of authors/owners and the general public – as can be ascertained from a perusal of notes to clauses as well as drafting history.

2. “In respect of any work” – a conscious inclusion of all works protected by Copyright, irrespective of them being works with all rights under 14 or only with neighboring copyrights under 14(d) and 14(e).

3. Except under or in accordance with registration granted under sub-section (3)- clear regulatory overlay- wherein no one who is unregistered is to not be recognized

The website of the Plaintiff- Novex, to the contrary clearly says that it is engaged in “the business of giving public performance rights in sound recordings”. How is this legally tenable? Here come the provisos.

Novex communications, as its business model has crafted a very interesting strategy, which may even qualify the literal interpretation test of the statute. What Novex does is that it gets  what it calls-  assignments of the rights essential to issuing such licenses, in its favour, or becomes an authorized agent, triggering the protection under Section 30 of the Act, as well as the first proviso to Section 33(1) of the Act which says that the owner of the Copyright shall, in his individual capacity, continue to have the right to grant licenses in respect of his own works consistent with his obligations as a member of the registered copyright society. By using what it calls assignments in its favour, or agency contracts from multiple copyright owners, Novex is a prime example of using the “individuated autonomy” granted in favour of copyright holders (to continue to operate in 2 ways- through a society and individually) to issue licenses, as its business, bereft of the regulatory oversight by Central Government.  The Madras High Court has held that this squarely goes against the intent and purport of the statute, which aims to consciously control the tariffs, and “oversee”, in the general interests of the public, the functioning of en masse issue of licenses of works.

In any case, whether these agreements purportedly transferring “ownership” rights in favour of Novex, are in fact assignment agreements under Section 18 and 19 of the Act, should have been deeply analysed by the Court. Merely because Novex calls it so, and so do the Copyright owners, it would not really qualify as an assignment of the right to communicate the sound recording to the public. The Court should have gone deeper into the question as to whether these agreements which Novex relies upon are assignment agreements, in terms of the requirements of Section 19 of the Act or not.

This judgment of the Madras HC is however not settled law. Importantly, there are various orders in favour of Novex, wherein it has been recognized by Courts as a legal entity. The primary reliance that Novex places to justify its business is on the judgment of the Delhi High Court, through J. Valmiki Mehta, in Novex v. Lemon Tree Hotels, where it was held, placing reliance on the amended second proviso to Section 33, which was brought in 2012, that the restriction of issuing licenses only through Copyright societies is only qua underlying works in a sound recording and not on the sound recording itself. Further, if owners are prohibited from issuing assignments/agency contracts, in favour of Novex for issuing licenses, it is a violation of the first proviso. Even recently in a case titled PPL v. Canvas Communication, J. Harishankar of the Delhi HC, has in his prima facie view, upheld this precedent, and disagreed with the judgment of the Madras HC, it being one from a coordinate bench of the same court. This, however, is a prima facie view, and can only be relied for prima facie reliefs, like interim orders.

My Opinion

In my opinion, the clear statutory intent which comes out of these provisions referred above is governmental regulation, as against conduct of business of issuing licenses in a free market setup. But for the existence of a copyright society in all classes of works in the Act, no company can in fact do business in issuing licenses. There are only two ways of issuing licenses- either through a registered copyright society in terms of the Act, or by the owner, in his individual capacity, i.e., not as a license issuing business on behalf of many owners. Any other entity, which is not registered in terms of Section 33, and is doing the business of issuing licenses, is in the purport and intent of the Act, in my opinion- illegal. The reason for this, from a perusal of the debates, seems to be “general interests of public”, wherein exorbitant license fee cannot be charged by license holders through their businesses, for access to copyrighted works. A question might seem apposite here- why will someone do business if there are so many hassles. Well, it’s not just monopoly holders that do business. The intent of the Act, which provides a complete monopoly in its subject matter, is to regulate the same, in a manner conducive to the interests of the general public. Monopoly is a step away from the idea of free market economics itself, and hence defending its operation completely using free market logics, is an oxymoron.

In my opinion, the opinion in Novex v. Lemon Tree of the Delhi HC, misses two important aspects of interpretation, which the Madras HC has gotten right. In relation to the second proviso, the interpretation of the Delhi HC ignores the use of the word “all works” in Section 33, which clearly shows the intent that all businesses of issuing licenses, ought to be registered in terms of the Act, irrespective of whichever work it is for. Further, the second proviso in my opinion is merely a clarification in the 2012 amendments, wherein for the first time, in Sections 17 and 18, a statutory difference was established between underlying rights in works incorporated in sound recordings. It is merely a clarification that even in cases of underlying musical, artistic, literary works incorporated in a sound recording, licenses can only be issued through a registered society and not otherwise. It is not, in my opinion, the intent of the drafters, to completely erode the value of the word “all” in Section 33, by restricting its application to underlying works and by keeping sound recordings away from the requirement of registration. The amendment in 1992, which brought in the idea of a registered society, was not just for the benefit of underlying work authors, but rather in the general interests of the public, where access to copyrighted content cannot be held at the mercy of the rates fixed by monopoly holders, who are in fact conferred a monopoly by the statute itself.

Secondly, in relation to the first proviso, in my opinion such use/interpretation of the first proviso is clearly in ignorance of the use of the phrase “in its individual capacity” and is an interesting use of the drafting of the statute by Novex to bypass the (intended) regulatory interference in the right to conduct business of issuing licenses.

All faults however cannot really be attributed to Novex.

The Central Government has been extremely lackadaisical in approving copyright society registrations, specifically in respect of societies in the realm of sound recordings. RMPL is the only society existing and was registered after 9 years of the Amendment to the Act (see more here),  and PPL has been fighting long standing litigations for revival and legitimacy in its existence (see here). In such a situation, where there is clear regulatory lethargy, the regulatory purport “in the interest of general public” has almost led to a situation where it is these interests which are in fact sacrificed, specifically qua owners of sound recordings/ master rights who inject substantial investment in their works, and are, in effect, forced to individually manage the licensing of their own catalogue due to this regulatory incompetence.

Copyright owners are now found in an uncertain situation where they don’t really know what to do. The government is not really processing applications for registrations of societies, the Courts are divergent in their views, and everyone is confused as to how to go ahead issuing licenses, without it being a hassle to their business of owning master rights and investing in music production. Pointedly however, it is trite to be noted that they can still individually issue licenses – though it may be inconvenient.

It’s a situation similar to the leviathan that Amy Kapczynski spoke of here:

“Can we conceive  of—even  if  we  cannot  easily  achieve—a  state  that  is  capable  of  constraining  the  proliferation  of  exclusion  rights  in  information  and  that  can  support  social  ordering  beyond  markets?  Is it  possible  to  imagine  a  state that could temper the tendencies of certain market formations to promote ghastly  inequality,  environmental  collapse,  and  political  corruption  of  the  first  rank?  If the  answer  is  no,  then  we  should  fear  grievously  for  our  collective  future.  In that  case,  the  market  and  the  commons  will  not  be  able  to  save  us  from the neoliberal Leviathan, and the future of ideas will be bleak indeed.”

Therefore, I believe, that although legally sound and a step in the right direction, this judgment of the Madras High Court could have done much more and is therefore disjuncted from reality. Hopefully the Bombay HC, which has recently issued notice in a case concerning a similar issue (PPL v. The Royal Fusion Café and Lounge and ors.), address these issues.

Image source: here

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Views are completely my own and not at all concerned with anyone else, either from my employment or from IPRMENTLAW.

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