Carrying “business of issuing licenses” of Copyright- Prohibited in India

1. Introduction:

In a recent decision dated December 1, 2021 (“Order”) passed by the Madras High Court (“Court”) in the case of M/s.Novex Communications Pvt. Ltd. v. DXC Technology Pvt. Ltd., M/s. Novex Communications Pvt. Ltd. (“Plaintiff”) had filed separate injunction suits against DXC Technologies Pvt. Ltd. and Cognizant Technologies Solutions India Pvt. Ltd. (“Defendants”), praying for an injunction from publically performing and in any manner communicating the sound recordings to the public, rights in which are assigned and authorised to the plaintiff, or infringing Copyright in any work owned and protected by the Plaintiff.

Before going into the merits of the matter, a preliminary issue was framed by the Court to determine whether the Plaintiff has a right to issue the licenses under the Copyright Act, 1957 (“Act”). It was held that since Plaintiff is not a registered Copyright Society, it is prohibited from carrying the “business of licensing” as per Section 33 of the Act.  

1. Details of Plaintiff:

Plaintiff is a company engaged in the business of issuing licenses in sound recordings to hotels, events, etc. for on-ground public performances. It has obtained rights in the sound recordings in the following manner:

1. Assignment of on-ground performance rights of sound recordings (for example, agreement with Tips Industries Ltd.);
2. License on the exclusive basis of on-ground performance rights, sound recordings and visual and acoustic representation of underlying works enjoyed as part of the on-ground performance (for example, agreement with Sukhbir Singh);
3. Appointment as an authorised agent for licensing sound recording to third parties (for example, agreement with Yash Raj Films Pvt. Ltd.).

It is essential to note that these agreements expressly mention that Plaintiff is entitled to grant licenses in respect of on-ground performance rights to third parties. Further, Plaintiff’s website also provides options such as inquiry rate and obtain NOC, thereby establishing that the license is granted and license fees is collected by Plaintiff itself. The details of the distribution of these licensing fees with the owner of the Copyright of sound recordings or with the owner of underlying works are neither detailed on its website, nor expressly mentioned in the agreements. In fact, the agreements reflect payment of one-time lump sum consideration against assignment. It is pertinent to note that no consideration details are mentioned in the letter of appointment as an authorised agent.   

1. Context of the case:

It was the case of the Plaintiff that based on the assignment agreements, it has exclusive Copyright with respect to the exploitation of on-ground performance rights of assigned sound recordings, which was infringed by the Defendants as they were played at events without obtaining licenses from the Plaintiff. To this, a preliminary objection was taken by the Defendants on the competence of the Plaintiff to institute the present suits by citing Section 33 of the Act and stating that the Plaintiff being neither a Copyright Society nor a member of the Copyright Society, cannot issue or grant any license or claim license fees.  

1. Relevant sections of the Act:

1. Section 18: Assignment of Copyright

(1) The owner of the Copyright in an existing work … may assign to any person the Copyright either wholly or partially and either generally or subject to limitations …..:

Provided also that the author of the literary or musical work included in the sound recording but not forming part of any cinematograph film shall not assign or waive the right to receive royalties to be shared on an equal basis with the assignee of Copyright for any utilization of such work except to the legal heirs of the authors or to a collecting society for collection and distribution and any assignment to the contrary shall be void.]

(2) Where the assignee of a Copyright becomes entitled to any right comprised in the Copyright, the assignee as respects the rights so assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of Copyright and the provisions of this Act shall have effect accordingly.

• Section 30: Licences by owners of Copyright

The owner of the Copyright in any existing work … may grant any interest in the right by licence in writing by him or by his duly authorised agent:

• Section 33: Registration of Copyright Society

(1) No person or association of persons shall, … 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:

(All the sections referred hereunder are of the Act.)

• Arguments:

1. Plaintiff:

1. By virtue of the assignment agreements, it has separate Copyright in the sound recording as per Section 18(2), and hence, its independent right to grant licenses as an absolute owner of this Copyright is recognised under Section 30.
2. Section 33 recognises the rights of original content creators who are authors of the underlying literary, musical or artistic work (“underlying works”).
3. Since the right of the owner is recognised under Section 30, it need not be registered as a Copyright Society under Section 33(3).
4. It is the owner of the “work”[1] viz. sound recording and has the right to issue licenses to and collect royalties from any person as per the conjoint reading of Section 18, 30 and 33.

• Defendant:

1. The Plaintiff is prohibited to conduct the business of issuing and granting license as per the second proviso to Section 33, except through a Copyright Society.
2. The Plaintiff claims to be the owner of on-ground performance rights of the sound recording, and therefore is not the owner of the “work” but the owner of a singular “right”. Section 30 permits the owner of work to grant the license, and not the owner of a “right”. It consciously deals only with respect to “work” as Section 33 deals with both “right” and “work”.
3. Section 33(3) highlights the importance of safeguarding the interest and convenience of the public and authors of underlying works. Allowing agents and assignees of original owners to conduct the business of license in this fashion defeats the intent of the section.
4. The 2012 amendment brought the rights of the authors of the work on par with the owner of the work. Hence, granting a license and collecting royalties of Copyright has been routed through the Copyright Society regulated by law.

• Order:

1. The Court distinguished the right of a Copyright owner in his individual capacity from that of a person or group of persons involved in the business of issuing licenses. It stated that while the prior is the right of the Copyright holder, the latter is legally prohibited in light of Section 33.
2. It held that as per Section 18(2) the assignee becomes owner of the Copyright and is entitled to issue licenses under Section 30. However, the distinction of individuals and business entities in respect of issuing licenses is made under Section 33, which expressly prohibits “business of issuing or granting licenses” except through Copyright societies, while retaining the right of the owner in his individual capacity to license his work. (Para 29 of the Order)
3. It held that Section 33(1) and its second proviso does not debar the Copyright owner from dealing with the business of issuing licenses in respect of 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 26 and 31 of the Order)
4. The Court emphasized on two legislative intents of the 2012 amendment viz. accessibility of Copyrighted work to the public at reasonable rates and protection of the authors of underlining work and stated these as the reasons for prohibition on the business of issuing licenses. It stated thatSection 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. (Para 36 of the Order)
5. The suits were dismissed with costs to be paid by the Plaintiff to the Defendants.

• Analysis

1. Dual role of Plaintiff:

Plaintiff plays a dual role based upon the agreements, viz. as an agent and as an assignee, that is, the owner of on-ground performance right in sound recordings in pursuance to Section 18(2). It also plays the role of the exclusive license holder, however, the same was not discussed by the Court. It is essential to analyse these roles vis-à-vis the meaning of “business of license”. The Court has defined “business” as a commercial enterprise carried on for profit. Thus, the business of licensing would mean commercial enterprise carried on for profit by licensing Copyright.

Upon perusal of the assignment agreements, it is apparent that the assignment was aimed to allow licensing of right(s) provided therein to third parties. Further, the website of the Plaintiff clearly mentions that it is in the business of giving public performance rights in sound recordings. Therefore, though it is true that the Plaintiff is the owner of the right and is licensing in the individual capacity, it cannot be denied that it is conducting the business of licensing. It is pertinent to note that the agreements executed by IPRS (registered Copyright Society) and PPL are also assignment agreements where the right(s) in the Copyright is assigned, and therefore the structure or functioning of Plaintiff is similar to them.   

My understanding is that when it is acting as an agent appointed by the owner of the work, the license is being issued by the owner of work in its individual capacity through the agent. The authorised agent appointment letter expressly mentions that the Plaintiff is authorised to receive license fee payments “on behalf of Yash Raj Films”. Therefore, the owner of Copyright is individually licensing the rights in its work through Plaintiff, who plays a catalyst in such arrangement. However, Plaintiff is still earning profit out of this arrangement for its services as an agent. The real question, therefore, arises as to whether acting as a mere agent is equivalent to carrying business of licensing or is the owner of Copyright carrying the business of licensing by using Plaintiff as a connector between the owner and licensee.

• Failed implementation of the legislative intent:

The legislative intent discussed in detail in the Order viz. protection of authors of underlying work by providing them 50% royalty and making Copyrighted work available to the public at reasonable rates, fails miserably due to Copyright owner’s right to individually license the rights. I believe that the intent of protecting the authors cannot be a relevant intention to prohibit business of licensing as the right of authors to obtain a 50% royalty rate remains untouched and can very well be claimed. With respect to the intent of public welfare, an important question to ask is why would Copyright owners become members of the Copyright Society and license their work at lower tariff rates when they can individually license it at higher rates? Rather than becoming members of the Copyright Society, the owners of Copyright can set up an internal team catering to the licensing needs and charge higher tariffs. If this is so, then the prohibition on carrying on the business of license becomes redundant. In 2019, IPRS had sued Yash Raj Films for not granting the 50% royalty share of authors of the underlying work, to which it had replied that the royalty was granted as an advanced royalty component included in the agreement itself.

• Conclusion:

In my opinion, the Order may seem theoretically accurate, however, gravely lacks practical implications. Further, the exorbitant delay in granting registration to Copyright societies is essential to be considered, including the rejection of PPL’s application and its challenge before Delhi High Court, especially when the law provides that only one Copyright Society can be registered in respect of the same class of work.

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[1] As per Section 2(y) of the Act, the definition of “work” includes sound recordings.

Section 2(y) “work” means any of the following works, namely:— (i) a literary, dramatic, musical or artistic work; (ii) a cinematograph film; (iii) a [sound recording].