Petition Filed in Supreme Court to Challenge Constitutionality of Provisions on Compulsory and Statutory Licensing in the Copyright Act

In a notable development, Lahari Recording Company has challenged two provisions of the Copyright Act, 1957 (“Act”) in the Supreme Court. The gravamen of Lahari’s case is that the impugned provisions infringe their fundamental and constitutional rights and fundamentally alter the bargain that the copyright system is founded upon, by taking away the incentive for copyright owners to create original content.

At issue are Sections 31(1)(b) and 31D of the Act. While the former puts in place a system of compulsory licensing of works whose owner has refused to allow their communication to the public on reasonable terms, the latter creates a regime for mandatory licensing of works to broadcasting organizations on terms formulated by the Intellectual Property Appellate Board (“IPAB”).

The Supreme Court admitted the matter on 13th July. The matter
last came up on 31st August and is expected to come up next tentatively on the 17th of September.

While I have unfortunately not been able to access a copy of Lahari’s writ, In this essay, I will try to unpack their key arguments, set forth in this blog post, and assess their tenability and correctness. It bears noting that Chetanya Ramachandran had analyzed for this Blog the arguments made in the Delhi High Court by T-series to assail the constitutionality of the selfsame provisions that are at issue in the present case. The T-series writ was subsequently withdrawn, in light of a similar writ being filed by Eskay Video in the Calcutta High Court which is currently pending.

Key features of impugned provisions:

Before delving into the arguments made by Lahari, it would be instructive to briefly outline the raison d’etre underpinning the impugned provisions viz. Sections 31(1)(b) and 31D and the scheme envisaged by these Sections.

There may be circumstances in which a copyright owner of a musical broadcast or sound recording is willing to license his work to enable its communication to the public, but on terms that are objectively unreasonable. Put differently, while the copyright owner might make an offer to license his content in the eyes of the law, the terms on which such an offer are made may be so unreasonable as to make it unviable for anyone to communicate to the public the copyrighted content as a factual matter.

This problem was best characterized by the Supreme Court in the following words: “An unreasonable demand if acceded to, becomes an unconstitutional contract which for all intent and purport may amount to refusal to allow communication to the public work recorded in sound recording.”

It is precisely to obviate the need to enter into such ‘unconstitutional contracts’ that Section 31(1)(b) enables the IPAB to grant a compulsory license to a party it considers qualified, thereby enabling them to communicate to the public the work on the terms set by the IPAB.

Similarly, Section 31D also seeks to mitigate the impact of the unequal bargaining power that exists between copyright owners and broadcasters, by enabling the latter to broadcast musical works and sound recordings on the rate of royalty and other licensing terms determined by the IPAB.

Petitioner’s Arguments:

Lahari appears to have made the following 4 arguments to challenge the impugned provisions.

First, Section 31(1)(b), Lahari contends, does not envisage hearing the copyright owner on every occasion on which a compulsory license is granted to parties considered qualified by the IPAB. Similarly, Section 31D envisages the grant of a statutory license without hearing the copyright owner. This makes these provisions, in Lahari’s view, arbitrary and thereby violative of Article 14.

Second, given that Section 31(1)(b) gives the IPAB the power to formulate the terms on which a compulsory license is to be granted by taking away this right from the copyright owner’s remit, Lahari argues that it makes an impermissible inroad into the contractual freedom of copyright owners and unduly constrains the exercise of the rights that are a natural consequence of being a copyright owner.

Third, Lahari challenges Section 31D on the ground that the provision removes the relationship between broadcasters and music labels from the realm of commercial negotiation and enables broadcasters to utilize copyrighted content on subsidized and preferential rates. This, Lahari argues, unduly tips the scales in favour of broadcasters by prioritizing commercial profitability of broadcasters over the interests of copyright owners.

Finally, by virtue of the fact that these provisions unduly constrain the exercise of the rights of copyright owners, Lahari argues that they take away the incentive for a copyright owner to create more original content. On a practical level, Lahari argues that, by virtue of the existence of the statutory licensing route, broadcasters are likely to seek an escape hatch from their contractual arrangements with copyright owners and instead seek to access the statutory licensing route which is more favourable for them.

Analysis:

Although no replies have been filed in the matter thus far, I am of the considered view that Lahari’s writ is unlikely to succeed on account of the reasons outlined below.

First, a bare perusal of the impugned provisions makes it clear that Parliament has formulated a finely reticulated statutory scheme to balance the worthy goal of ensuring wide dissemination of copyrighted content with the need to ensure that this does not result in undue curtailment of the rights of copyright owners.

While Lahari is correct in contending that the copyright owner does not have to be heard each time a compulsory license is granted to a qualified party pursuant to Section 31(1)(b), it bears noting that the decision to make a particular piece of work the subject matter of compulsory licenses cannot be made by the IPAB until the copyright owner is given a reasonable opportunity to be heard and until the IPAB conducts any other enquiry that is necessary for the grant of such a license.

Similarly, while it is true that there is no requirement of hearing the copyright owner before the grant of a statutory license under Section 31D, it is not the case that their interests have not been duly reflected in the statutory scheme created by the legislature. To illustrate, the IPAB is empowered to direct a broadcaster to pay part of the royalty amount to the copyright owner in advance [Section 31D(4)] and the copyright owner has to be heard in the event the broadcaster decides to alter the copyrighted work for the purpose of broadcast [Section 31D(6)].

Second, insofar as Lahari’s second and third arguments are concerned, it bears mention that the legislature has vested the IPAB with the power to make determinations as to the rate of royalty and the terms on which a compulsory/statutory license is to be granted. Notably, the Supreme Court has itself endorsed the broad proposition that the right of copyright owners to enjoy the fruits of their labour is not unfettered and has to be balanced with the interests of the public. The relevant observation of the Supreme Court, in the case of Entertainment Network (India) Ltd. Versus Super Cassette Industries is quoted below:

“93. …. The owner of a copyright has full freedom to enjoy the fruits of his work by earning an agreed fee or royalty through the issue of licenses. But, this right, to repeat, is not absolute. It is subject to right of others to obtain compulsory licence as also the terms on which such licence can be granted.
…”

Therefore, given that the Supreme Court has affirmed (albeit in passing) the validity of this line-drawing exercise to balance the interests of copyright owners with the interest of the public, the only bone of contention that remains is the manner in which the line is to be drawn in a given case (in terms of ascertaining an objectively reasonable rate of royalty and licensing terms that both parties can live with). In this regard, I would submit that the IPAB, in light of the fact that it is a quasi-judicial body possessing relevant expertise, is best positioned to determine the terms on which this line can be drawn in the facts of a given case. As a result, this arrangement, in my submission, rests on a constitutionally sound foundation.

Third, insofar as Lahari’s argument that the impugned provisions take away the incentive to create copyrighted content is concerned, I would submit that the impugned provisions, in fact, have the opposite effect. Let me explain. The impugned provisions are premised on the understanding that by virtue of the power that copyright owners wield, they are unlikely to be willing to license their content on reasonable terms, making it infeasible for third parties to utilize copyrighted musical content.

Assuming that this premise is correct, third parties would be unwilling to transact with copyright owners of musical content unless such a transaction is mediated by a third party which can help level the playing field to an extent. As a result, Sections 31(1)(b) and 31D help bring to life transactions that would otherwise be non-existent (admittedly on terms that are not as favourable to copyright owners as would obtain in case of commercially negotiated licenses). In so doing, they help increase the number of licensees that copyright owners transact with and increase the incentive for such owners to create copyrighted content.

Even if this premise is incorrect (and I see no reason why it would be,) given the presumption of constitutionality that attaches to all post-independence laws and the fact that it is an arguable position whether these provisions actually disincentivize the creation of copyrighted content, I would submit that a constitutional court would generally be loath to striking down such a scheme as being unconstitutional.

Further, Section 31D(8) preserves the legal sanctity of all agreements entered into between broadcasters and copyright owners before 2012 (the year in which this provision came into effect). As a result, Lahari’s fear of broadcasters trying to wriggle out of existing agreements is unfounded, at least qua a portion of such agreements.

Lastly, it bears mention that the Madras High Court repelled a challenge to the constitutionality of the impugned provisions in a 2016 judgment on a petition filed by South Indian Music Companies Association which I had covered here.

Reasoning that the impugned provisions are a product of a carefully considered balancing exercise and framed in such a way as to protect the interests of copyright owners as well as the public, the Madras High Court had upheld their constitutionality.

For all these reasons, I believe that the writ is unlikely to succeed. Only time will tell if the Supreme Court thinks so, too.