INTRODUCTION

Section 18 of the Copyright Act, 1957 ("Copyright Act") deals with the assignment of copyright. Such assignment can either be by an owner of an existing work or the prospective owner of the future work to any person, either in whole or in part. By way of the Copyright (Amendment) Act, 2012 ("Amendment Act") two provisos were inserted by the legislature to Section 18 of the Copyright Act.

The provisos1 essentially prohibit an author of literary or musical work forming part of either a cinematographic film or a sound recording from waiving his/her right to receive royalties (and any such waiver if done will be void) for utilization of the underlying work. The royalties so received is to be shared equally with an assignee of the copyright (if any and as applicable). This rule prohibiting waiver and entitling authors to at least 50% royalty does not apply to assignments made to: (a) communicate the underlying work as part of a cinematograph film in a cinema hall; (b) the legal heirs of such authors; or (c) a copyright society for collection and distribution.

This piece delves into the principle issue arising out of the provisos, whether the utilizer or the assignee (i.e. a producer) is liable to pay the royalties to the authors. This issue (and the underlying liability) continues to haunt the media and entertainment industry. A deeper look into this issue gives rise to several sub-issues, for instance: (a) whether the royalty paid under a contract by a utilizer of the principal work (i.e. sound recording or a cinematographic film) to an assignee by itself includes the royalty entitlement of the author; and (b) whether the author (who is a non-signatory to a contract between an assignee / producer and the utilizer / broadcaster) can claim benefits arising from such contract.

In addition, this piece also discusses a conundrum created by the rulings of the Hon'ble High Court of Delhi ("DHC") (single judge) in the case of The Indian Performing Right Society Ltd. vs. Entertainment Network (India) Ltd. ("Entertainment Network Case") and Phonographic Performance Ltd & Anr vs. CRI Events Private Limited & Ors.2 ("PPL Case") (decided together).

HISTORIC EXPLOITATION OF AUTHORS

Prior to the Amendment Act, the Copyright Act (by way of Section 17(i)(b)) provided that the artistic works belongs to the owner, subject to the contract to the contrary. This led to the prevalent practice in the industry, wherein the assignee / producer used to get the rights of the artists unconditionally assigned in its name, making the producer sole author of the copyright instead of the artist. Even all the profits accrued from the utilization of the artistic work were reaped by the producer, depriving the author of the artistic work of any share in the profits.

The aforesaid issue was also addressed in the debate in Lok Sabha3 (lower house of the Parliament of India) wherein Mr. Kapil Sibal (then Minister of Human Resource Development), described the above as -

"But, unfortunately, there was a provision in Section 17 (i) (b) of the Act under which it was said that the artistic work belongs to the owner, subject to a contract to the contrary. So, what used to happen is that if in a film, a song was to be sung, the producer of the film would go to the artist and say that you have assigned your rights to me unconditionally and you have assigned them forever. The result was that under the Copyright Act, instead of the artist, the producer became the sole author of the copyright. The result of that was, he produced the film, the artist got the benefit of whatever he could get in the film but he sold those rights of which the producer became the owner through other medium. He sold it to music companies; he sold it to telecom companies; and he made all the profits. The result was that the poor author and the poor creator of the copyright did not get any share of the profit. According to me, this is a historic injustice to the creators."

The Amendment Act therefore, sought to curb the above stated injustice of not receiving any benefit / royalty by the authors of the underlying works. However, it did not change the manner in which the flow of royalty should happen i.e. from the utilizer / broadcaster to the assignee / producer to the authors of the underlying works.

SCOPE OF THE PROVISOS

It is undisputed that the provisos set out an un-waivable right of an author to claim at least 50% royalties for the utilization of the underlying musical and literary work. The same has also been upheld by the Intellectual Property Appellate Board, New Delhi ("IPAB") in the case of Music Broadcast Ltd. vs. Tips Industries Ltd. and Ors.4 ("Tips Case"). In this case IPAB adjudicated on several applications filed by the Music Broadcast Ltd. under Section 31(D) of the Copyright Act seeking statutory license for broadcasting of literary, musical works and sound recording and to fix the royalties to be paid to assignees of the copyright for radio broadcast of sound recordings to the public. The Indian Performing Rights Society ("IPRS") vide an intervention application raised the issue that the royalty in the underlying works i.e. lyrics and musical composition of sound recording with respect to the radio broadcast should also be fixed independently at the time of fixing the royalties of the sound recording.

IPAB in the Tips Case while considering the arguments and suggestions of IPRS, vide its judgment dated 31 December 2020 observed that royalty payments to an author for the underlying musical or literary work (forming part of sound recording or a cinematographic film) is a mandatory obligation levied by the provisos 3 and 4 of Section 18 (Assignment of copyright) and sub-Sections 9 and 10 of Section 19 (Mode of assignment) of the Copyright Act.

However, contrary to the ruling in Tips Case, the DHC (single judge) in both Entertainment Network Case and the PPL Case while adjudicating a similar question reached at a conflicting position.

The Entertainment Network Case was filed by IPRS against a radio broadcaster for violating the terms of license. The broadcaster was permitted to broadcast in seven cities, however the sound recording was broadcasted in three new cities without obtaining any permission. IPRS claimed that there was exploitation of the sound recording as well as the underlying work and demanded the royalty for both these works separately. On the other hand, in the PPL Case, Phonographic Performance Ltd. had filed a suit for exploitation of the sound recordings by a banquet hall without obtaining the requisite licenses / permission. It was also claimed that the alleged exploitation also extends to the underlying work and thus a separate license fee must be paid. The DHC (single judge) vide a common judgment dated 4 January 2021 distinguished the sound recording from the underlying music and literary work and held that the authors of the underlying work shall have no claim or right in the exploitation sound recording.

The Entertainment Network Case / PPL Case thus created a conundrum with regards to the un-waivable right of the authors of the underlying work to claim royalties. The ruling is contrary to the intent of the legislature. The judgment delivered by the DHC (single judge) along with the IPAB judgment in Tips Case has been challenged before the Division Bench in the case titled, The Indian Performing Right Society Ltd. and Ors. vs. Entertainment Network (India) Ltd. and Ors., and is pending adjudication.

ROYALTY & AUthors: AN unREALISED ENTITLEMENT

Royalty: who owes and who pays?

The standard industry practice in the licensing of the copyright include only two parties to the Contract, i.e. utilizer / broadcaster and the assignee / producer. Usually, the assignee / producer and utilizers / broadcasters don't include the authors of the underlying works or copyright societies (on their behalf) in the contract for obtaining a license. A direct license is given by the producer for utilization of sound recording without accommodating entitlement of the authors under the provisos. Copyright societies like IPRS become relevant for the authors of the underlying works who struggle to claim royalty from producers who carry dominance and disproportionate bargaining power in the industry. The authors are unable to claim royalty entitlement from the utilizer / broadcaster due to ambiguity in the language of the provisos.

Sound recording v. Literary and musical work

In order to understand the above issue, it is pivotal to first understand whether 'sound recording' is considered a distinct and separate work. The same was partly discussed in Entertainment Network / PPL Case and the DHC (single judge) observed that the sound recordings are not just a sum total of lyrics and musical work only, it is something besides the literary and musical works therein. It is a distinct work (from literary or musical works) produced by the producer who makes the amalgamation of the lyrical work, musical work and sound recording commercially viable and communicable to public. Therefore, law recognizes an independent right on sound recordings.

Licensing of a sound recording to a utilizer does not mandate separate licensing or assignment of the copyright in the underlying works

Division Bench of the DHC in the case of IPRS vs. Aditya Pandey5 which was later affirmed by the Supreme Court of India in the case of ICSAC vs. Aditya Pandey6 held that the law does not mandate separate licensing of the copyright of the underlying work and the licensing of the copyright in the sound recording should suffice. There exists no requirement for the payment of the separate licensing fee for the underlying works by a utilizer if a licensing fee / royalty has been paid on the assignment of the copyright in the sound recording.

The IPAB, in the Tips Case similarly observed that the payment by the utilizer / broadcaster shall be termed as royalty for the utilization of the sound recording as well as for the underlying work therein within the meaning of the provisos 3 and 4 to Section 18. The IPAB in the Tips Case referred to the Lok Sabha debates and the report of the Standing Committee of the Parliament7 to ascertain the legislative intent. The IPAB found that the amendments were brought in to recognize the independent right of the authors of the underlying works to receive royalties for the exploitation of the works without affecting the rights of the assignee / producer in the principal work. However, nowhere in the Amendment Act, interpretation of the amendments by the courts and tribunals, and legislative debates and reports, it appears that a separate licensing or assignment of the copyright in the underlying works is required.

Therefore, it can be interpreted that the license fee payable for the principal work (sound recording or a cinematographic film) by the utilizer covers the license fee for the licensing of the underlying work.

Understanding 'equal basis' in the provisos

A plain reading of the provisos 3 and 4 of Section 18 will clarify that the royalties received in respect to utilization of a sound recording or a cinematographic film (except when displayed in a cinema hall) has to be shared at least on an 'equal basis' between an assignee and the author. The provisos do not use the term 'pay' on an equal basis but uses 'share' which undisputedly should mean that obligation is on the party which in the first place has received the royalty to share it equally as against the utilizer / broadcaster, who pays the royalty. Consequently, any royalty paid by a utilizer to an assignee under the contract executed between these two parties should by itself include the royalty entitlement of the author as well and there should be no obligation on a utilizer to pay royalty separately to the author who is alien to the aforementioned contract.

The above discussions avails support from the legislative intent behind introducing provisos 3 and 4 vide the Amendment Act. Mr. Kapil Sibal while introducing the Copyright (Amendment) Bill, 2012 in the Lok Sabha stated that the government intends to:

"ensure that the authors are the owners of the copyright and whereas the copyright can be assigned, the right to royalty cannot be assigned" and "the producer and the authors must share that royalty in equal measure".

Additionally, Mr. Shashi Tharoor, member of the Parliament also opined that:

"There are essentially two rights at stake here. There is the sound recording and there is the underlying work, the composition, the tune. When a song is played anywhere, on radio, on your computer, on your ringtone of your cellphone, really two sets of royalties have to be generated; two sets of people have to be rewarded. One is those who have done the recording, that is the producer, perhaps the company, and the other is those who have done the performance, the lyricist and the composer."

Therefore, from the above it is apparent that the royalty paid by a utilizer of the principal work (i.e. sound recording or a cinematographic film) to an assignee covers the royalty of an underlying author. Accordingly, it is the liability of the assignee to share (not pay) the royalty received from the utilizer on equal basis with the underlying authors. No claim for royalties should lie from an author against the utilizer / broadcaster of the principal work.

Assignment in cases of copyright societies

From the above discussions and the bare perusal of the provisos, it can be said that the obligation to pay or share the royalties with the authors of the underlying work is on the assignee / producer and not on the utilizer / broadcaster. However, in cases where the copyright societies are engaged by the authors of the underlying work, the manner of distribution should not be any different. The flow of the royalty would remain the same. The utilizer / broadcaster will pay the copyright society (which is typically not the case since broadcasters as a standard practice obtain the necessary license from the producers) which will in turn be distributing the due share of royalty amongst the beneficiaries.

During the Lok Sabha debates, Mr. Kapil Sibal discussed this issue while answering the question raised by Mr. Tathagata Satpathy with regard to the division of the royalty amount, "how will it be divided?" In response to this question Mr. Kapil Sibal responded:

"With regard to the question how these royalties are to be distributed, these are to be distributed by the Copyright Society. For example, fifty per cent of royalties will be collected by authors and composers but they will share these 25 percentage. So, that is also provided by the Copyright Society itself."

Rights of non-signatory author to a contract between the assignee / producer and the utilizer / broadcaster

It is undisputed that the sound recording is a distinct work which in itself is an amalgamation of literary and musical works. The assignment of the sound recording requires no separate assignment of the underlying works therein. This has led to a prevalent practice in the industry wherein the contracts entered into by the assignee / producer with the utilizer / broadcaster for the licensing of the sound recording or cinematographic film do not recognize or acknowledge the rights of the authors.

As a general rule it is not open to a non-signatory to a contract to claim any right or reap benefits out of it, unless the contract specifically sets out a non-signatory as a beneficiary in the contract itself. However, it can be argued that since the right of the underlying author to claim royalties emanates from a statute (proviso 3 and 4 of Section 18), it will have an overriding effect to the contractual rights of signatory of the contract. Reliance in this regard is placed upon the case of Universal Petrochemicals Ltd. vs. Rajasthan State Electricity Board8, wherein the High Court of Calcutta held that "We make it clear that the statutory provision will obviously override any agreement between the parties and a private contract cannot override a statute" and on Kajal Aggarwal vs. The Managing Director, M/s V.V.D. & Sons P. Ltd.9 by the High Court of Madras wherein it was observed that "when there is a conflict between the contractual provisions and statutory provisions, it is only the statutory provision that would prevail and not the contractual provisions agreed to between the parties".

Nonetheless, the authors of the underlying work can claim share in royalties in the utilization of their work from the contract between the assignee / producer and utilizer / broadcaster. Since the right to receive royalty to be shared on equal basis is a statutory right between the author of the underlying work and the assignee / producer as opposed to the 'right to claim royalty from the broadcaster / utilizer' or 'liability on the broadcaster / utilizer to pay', the obligation to share the royalty with the authors of the underlying works is placed upon the assignee / producer and not upon the utilizer / broadcaster. This can also be inferred from the Tips Case wherein it was held that the payment by the utilizer / broadcaster shall be termed as royalty for the utilization of the sound recording and the underlying works therein within the meaning of the provisos. Contrariwise, the right to receive royalty shall be shared by the assignee and the authors of the underlying works.

A prudent and the logical reading of the provisos would mean that the extent of the claim of royalty by the authors of the underlying works lies till the assignee / producer. The underlying authors need not be a party to the contract between the assignee / producer and the broadcaster / utilizer and certainly need not to raise a claim to royalty as a third party to the contract.

CONCLUSION AND ANALYSIS

The provisos though appears to be a prescient approach taken by the legislature (almost a decade back) to safeguard the rights of authors of underlying work in a principal work, however the fruits of the said amendment seem to be motionless. This is especially due to absence of critical jurisprudence addressing the complex issues (both legal and practical) revolving around the amendment or on which the amendment lacks clarity.

In the backdrop of above discussion, it is clear that certain critical gaps and unresolved issues emanating from the Amendment Act continues to haunt the effective implementation of the beneficial legislative intent behind it. Nonetheless, the absurdity follows from the interpretation of the amendment by the DHC (only to the extent), wherein the DHC held that the authors of the underlying work shall have no claim or right in the exploitation of the principal work. The proviso 3 and 4 of the Section 18 appears to be quite clear with regards to the 'un-waivable right' of an author of the underlying work in the share of royalty arising from the utilization of work.

While it may be difficult to predict what the Division Bench of DHC may rule, a holistic reading of the subject would recognize the rights of the authors of underlying works in accordance with the amendments brought in by the legislature in 2012 and align the position of law as intended by and captured in the Lok Sabha debates and the Standing Committee Report.

Be it as it may, the other issues are of far more practical relevance. The authors' right to receive royalties are to be shared by the assignee / producer. The share in the royalty has to be claimed by authors of the underlying work from the assignee / producer itself and the liability to pay royalties directly to the said authors is not levied on the utilizer / broadcaster. Any royalty released by the utilizer / broadcaster with regard to the utilization of the principal work is inclusive of the share of the author of the underlying works. In this regard, there exist no legal requirement on the utilizer / broadcaster to seek separate license or assignment of the copyright in the underlying works during the licensing or assignment of the principal work. However, it is important for the effective implementation of the Amendment Act that the legislature or the Court to establish the proper chain of flow of royalty. The obligation to pay royalty lies on the utilizer / broadcaster to pay the assignee / producer which will in turn be sharing it with the authors of the underlying works.

Footnotes

1. Proviso 3: Provided also that the author of the literary or musical work included in a 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 the utilisation of such work in any form other than for the communication to the public of the work along with the cinematograph film in a cinema hall, except to the legal heirs of the authors or to a copyright society for collection and distribution and any agreement to contrary shall be void.

Proviso 4: 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 utilisation 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. MANU/DE/0002/2021.

3. Lok Sabha Debates, Fifteenth Series, Vol. XXVI, Tenth Session, 2012, No. 34, (May 22, 2012).

4. MANU/IC/0068/2020.

5. 2012 SCC OnLine Del 2645.

6. (2017) 11 SCC 437.

7. Department - Related Parliamentary Standing Committee on Human Resource Development 227th Report on The Copyright (Amendment) Bill, 2010 (November 23, 2010).

8. 2001 SCC Online Cal 179.

9. 2017 SCC OnLine Mad 3128.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.