Copyright Societies are as good as “Owners” when it comes to issuing licenses: Another one bites the dust

As recently as on 24th January, 2024, the Bombay High Court, has passed a detailed judgment in the batch of Novex Communications Private Ltd. v. Trade Wings Hotels Limited and connected matters, holding Novex Communications as well as Phonographic Performance Limited (PPL)  to be entities, that can act as valid assignees permitted to issue licenses without being registered as a Copyright Society under Section 33(1) of the Copyright Act. This decision comes in the aftermath of a hot debate on this blog on this issue when sometime back the Madras High Court had issued a decision with a completely differing view.  The issue, even now, is far from being settled, with the Delhi HC [in Novex Communication Pvt. Ltd. v. Lemon Tree (order dt. 11/1/2019 in RFA 18/2019) and in the interim order dt. 17/12/2021 in CS(Comm) 67/202] and the Bombay HC [in the instant batch]  taking a view in favour of these agencies, and Madras HC (summary here) [in Novex Communications Pvt. Ltd vs DXC Technology Pvt. (order dt. 8/12/21 in CS Nos. 407 and 413/2020] taking a contra view.

The issue raised in these cases is extremely significant, given it is usual to see the Christmas vacation bench every year being flooded with suits against various restaurants, clubs and event places. There has been persistent confusion with respect to ‘locus standi’ of these agencies to file such suits on behalf of music right holders, claiming to be assignees of the right to issue licenses, as against being ‘registered copyright societies’. Against this backdrop, it is also relevant to notice the factum of PPL having filed its application to become a copyright society multiple times, and having been denied the same, with the most recent denial being vide GOI’s order dt. 30/6/2022 (as recorded in the order dt. 11th April 2022 of the Delhi HC in LPA 243/2022). Thus, it is of immense relevance that an agency that has de jure been denied registration under the regulatory regime of the Copyright Act, to function and issue licenses, is yet functioning as one de facto, by claiming assignments of this right to issue licenses, from various rights owners.

Arguments

Novex and PPL raised several arguments concerning the rights of assignees of copyright under the scheme of the Copyright Act of 1957. It was also argued that rights can be partially assigned to under Section 18(1) of the Act so long as the said assignment was in consonance with the provisions of Section 19, i.e., written, with a consideration etc. Reliance was also placed on Section 30, which provides the right to an owner to issue licenses. Given contracts with rights owners of sound recordings in respect of transfer of “on ground performance” rights, Novex claimed that it was the legitimate owner and was entitled to issue licenses, and to sue, in case licenses were not procured for on ground reproduction of its catalogue of owned works. Differentiating the purview of copyright societies, it was argued that copyright societies fundamentally operate to administer rights in “other’s” works, and not the ones they own, as against assignees who are owners. Section 34(1)(b) was also relied upon to argue that the section clearly contemplates that it is not mandatory for an owner to resort to a copyright society for carrying out the business of issuing licenses, and the same could also be done by the owner. Assignees in this context were argued to be the legitimate owner of the rights. It was also argued that an interpretation of Section 33(1) that would include owner in its purview, would be ex facie incorrect, at it would take away the rights mentioned under Section 30. On the aspect of “business of issuing licenses”, it was argued that the only legitimate interpretation was that Section 33(1) prohibited a non-owner to indulge in the business of issuing licenses, unless they were a copyright society. Section 30 was also argued to be a leading provision to the subordinate provision of Section 33(1).

On the important aspect of the phrase “ in its individual capacity” in Section 33(1), it was argued that the said phrase could not have been interpreted to mean exercise of rights by individual authors and owners, in their personal capacity, but only to mean any method apart from collective management where right holders make their own decisions about exercise of rights in works. Here the right holders in the said works are these copyright societies. It was also submitted that in the2nd proviso to Section 33, it was specifically contemplated that no one could carry on the business of issuing or granting licenses apart from a copyright society, in the case of underlying works, and the said language was missing in Section 33(1).

On behalf of PPL as well similar contentions were raised, and it was claimed that PPLs repertoire has majority of works over which it is the owner and the other works, it is the exclusive licensee. The judgment of the Madras HC was distinguished on the ground of its misconstruction of Section 30 of the Act.

In response, the Defendants argued that PPL and Novex are limited companies which are self-proclaimed-ly, according to their websites, and their agreements that they are relying upon, in the business of issuing licenses. It was submitted that Section 30 deals with the general provision of owners licensing works, and Section 33 deals with those who do the business of licensing. Section 33(1) to that extent was argued to have no impact on making Section 30 redundant. It was submitted that the assignment agreements are void as they do not specify “works” as required under Section 19(2); do not contemplate payment of royalty as mandated under Section 19(3) of the Act, over and beyond any consideration, and do not confer any actual ownership rights and are mere tools of circumventing the regulatory sphere conceptualised by the introduction of Section 33(1) and the chapter on Copyright Societies, to regulate the loss to users due to the unregulated business of licensing. Reliance was also placed on certain clauses of the PPL and Novex’s MOA and AOA which, as also PPL’s Annual Report, which clearly claim that PPL is in the business of issuing licenses. In this vein, reliance was also placed on the purported assignment deeds. (I have previously reflected on these arguments in my post here)

Another important argument raised was PPL’s attempt of floating on both boats, that is on the one hand seeking to be registered as a copyright society, in the pendency of the same, functioning as a business issuing licenses, as an assigned owner, relying on the said agreements. (I have previously written on this practice of PPL here). Reliance was also placed on Rule 2(c) of the Copyright Rules, 2013 to argue that the said Rule contemplates “Copyright business” to mean – “business of issuing or granting licnese in respect of any class of works in which copyright or any other right conferred by the Act subsists, and includes the functions referred to in sub-sections(3) of Section 34”. This was used to argue that the term has been defined broadly without excluding business carried by an owner. This was also specifically relied upon to show the significance of the use of the phrase “in its individual capacity” in Section 33(1). It was further submitted that assignment cannot be a reason to eradicate the regulatory ambit and intent of Section 33. It was further argued that copyright act seeks to balance the interests of owners and users, and it is in interest of users being able to use works for regulated license rates and modus, that the said provision of Section 33 was brought in. It was finally submitted that the Plaintiff’s interpretation essentially renders the intent and core of Section 33 negatory as any entity that wishes to conduct the business of issuing licenses can then seek an assignment in its favour of certain rights, claim itself to be the owner, and do the same. Avoiding this was the core intent of the 1994 Amendments.

Analysis by the Bombay High Court and Commentary

In paragraph 136, the Bombay HC ruled the assignment in favour of PPL and Novex to be a valid partial assignment terming them to be “owners”. This finding however did not deal with the contention of the Defendant that the assignment agreements are void as they do not specify “works” as required under Section 19(2); do not contemplate payment of royalty as mandated under Section 19(3) of the Act, over and beyond any consideration, and do not confer any actual ownership rights and are mere tools of circumventing the regulatory sphere conceptualised by the introduction of Section 33(1) and the chapter on Copyright Societies, to regulate the loss to users due to the unregulated business of licensing.

In paragraph 138, the Court ruled that Section 30 contemplates owners to be assignees, and hence PPL and Novex as owners/assignees have the power to grant licenses, in general.

Accepting the contention of the Plaintiffs, the Court in para 140 held that the idea of a copyright society is essentially to administer rights in respect of works belonging to others. Further, Section 34(1)(b) was read to mean that an author/owner did not have to carry out the business of licensing their works only through a society. In my personal opinion, the court misread the ability to grant licenses in their works individually, with the concept of the business of issuing licenses. The interpretation of Rules 2(c) of the Copyright Rules, was again not even dealt with, beyond saying that the same have no application on the legislative provision, and was shrugged off.

The Court in the same paragraph also held that it could not have been the intent of the Parliament to disable authors/owners who withdraw authorization from a copyright society from issuing licenses by the owner. The same, according to the court, would harm the public interest of making available the works to users. The Court here, in my personal opinion, misread the intent of the 1994 amendments, and in fact further went far away from serving the public interest of making available works- by handing over complete authorization of issuing licenses to unregulated entities shrouded under masks of being owners by untested assignment agreements. The significance of the use of the words- “in its individual capacity” was also ignored by the Court.

In this light, at paragraph 148, the HC held that Section 33(1) of the Act cannot curtail the power of the owner to grant any interest in the copyright by license under Section 30 of the Act. Here the Court omitted dealing with the contention of the Defendants that Section 30 and 33(1) do not contradict each other, and Section 30 operates generally to owners issuing licenses, and Section 33 applies to all those who are in the business of issuing licenses, including owners apart from in their individual capacity (i.e., personally in respect to their works, as against a specific agency curated just to seek assignments and issue licenses as a business).

In paragraph 153, the Court accepted the leading provision rule that was argued by the Plaintiff drawing a hierarchy between Section 30 and Section 33, without dealing with the argument that the two provisions were to operate in different spheres.

The Court has also not dealt with arguments concerning PPL’s ability to have both been trying to register itself as a society, and repeatedly failing, as also its current practice of seeking purported assignments, which this court rendered legal without evaluating them, to issue licenses. It has merely shrugged it off saying that it makes no differences, as PPL is separately entitled under Section 30 as well.

Although I acknowledge that there are two views on this subject and all fault cannot be put on PPL and Novex, given the lackadaisical approach of the government in approving and operating Copyright Societies, thus rendering a need for rightsholders to resort to such arrangements to conduct the business of issuing licenses in a collective manner. Moreover, some commentators are of the plausible view that Section 33 in its second proviso to clause (1) clearly contemplates that an interpretation that only allows a registered copyright society to issue licenses is specifically limited to underlying works and not to sound recordings. The specific inclusion of the second proviso contemplates inapplicability of the said rule on sound recordings- ergo the specific omission of its mention. This is irrespective of the fact that Section 33(1) specifically mentions “in respect of any work”. This is again a matter of debate which hasn’t been clarified by this Court.

As multiple HC’s and commentators have different opinions on this issue, it would be interesting if this issue is answered by the Supreme Court in the near future, settling the uncertainty prevailing in the industry.

(This post has been jointly authored with Mridula Bhat)

(Views expressed are personal)