Copyright Infringement Suits Invoking Right to Receive Royalty: Square Peg in a Round Hole?

We’re pleased to bring to you a guest post by Abhilasha Nautiyal and Aditya Gupta on the recent order of the Calcutta High Court wherein it directed Vodafone to deposit 2.5 crores in a copyright infringement suit filed by IPRS. Abhilasha and Aditya are attorneys at Ira Law, a firm that they have recently co-founded with other colleagues. Aditya was a part of a law firm for 7 years and more recently, an associate at the chambers of Mr. Amit Sibal. He graduated from National Law University, Jodhpur and then pursued a master’s in law from Harvard Law School. Abhilasha was a partner at an IP law firm and also has done her master’s in law from Harvard Law School after graduating from the Army Institute of Law. Their detailed bio can be found here.

Copyright Infringement Suits Invoking Right to Receive Royalty: Square Peg in a Round Hole?

Aditya Gupta & Abhilasha Nautiyal

The Calcutta High Court recently passed an order requiring Vodafone to deposit 2.5 crores in a suit filed by IPRS for copyright infringement, blowing the bugle in this battle for royalties.

Unfortunately, with great respect, the order is cursory and its reasoning superficial. Sample this – “Now that a society is in place to take care of the musicians, composers and lyricists, the rights of the members of the plaintiff are required to be protected…..Whether the Tips or Sony would be required to bear such liability out of the amounts received for exploitation of musical rights should not in any manner stand in the way of the society receiving its dues and share of royalty for musical exploitation.” First, the creation of a society is not the basis for the rights which are available to musicians, composers and lyricists. Second, the Calcutta High Court fails to identify as to why Vodafone is being made to deposit the amount if Tips or Sony had to bear such liability.

Much has already been written on the interpretation of the amendments carried in the Copyright Act, 1957 through the Copyright (Amendment) Act, 2012 [“2012 Amendment”]. This post seeks to address two crucial questions which the Vodafone case raises:

1. What is the nature of the “right to receive royalty” available to authors of musical and literary works?
2. Against whom can this “right to receive royalty” be exercised and what is the enforcement mechanism for exercising this right?

The question of division of royalty between authors and those who utilize their works is not covered in this piece.

A. Nature of the right to receive royalty

Prior to the 2012 Amendment, the Copyright Act 1957 [“Act”] recognized the following types of distinct rights:

• Copyright under Section 14 of the Act;
• Broadcast reproduction right under Section 37;
• Performer’s right under Section 38 of the Act;
• Moral rights/ Author’s/ Performer’s special rights under Section 57 and 38A of the Act;

As per the industry practice prior to the Copyright (Amendment) Act, 2012 , most authors of musical and literary works [“underlying works”] assigned all their rights to producers/ music labels for payment of a lump sum. This would mean that even if the song did very well, the authors of these underlying works did not get the benefit of such success.

The amendments to Ss. 18 and 19 to the Act [see 3^rd proviso and 4^th proviso of S. 18, Ss. 19(9), and 19(10)] sought to change this situation and protect the interests of authors of underlying works by guaranteeing them a share of the royalties in the event of utilization of their works.

The events leading up to the 2012 Amendment [the report of the Parliamentary Standing Committee and the Parliamentary debates] and the 2012 Amendment itself leave no manner of doubt that the authors of underlying works are now entitled to receive a portion of the royalty for exploitation of their works. This right to receive royalty has the following features:

1. It is inalienable, except as stated below, and incapable of being waived;

2. The right to receive royalty remains with the author even if the copyright has been assigned or licensed to another person [say the producer or the music label]. It can only devolve on legal heirs. Copyright societies can also be authorized to collect such royalty;

3. For underlying works incorporated in sound recordings forming part of films, this right can be exercised only with respect to exploitation of the underlying works outside cinema halls. Thus, royalties from all non-cinema hall uses of the work are to be shared with the authors.

4. For underlying works incorporated in non-film sound recordings, this right can be exercised with respect to any exploitation of the underlying works.

Is the “right to receive royalty” a subset of “copyright” under Section 14 or is it a contractual right?

One way of looking at the right to receive royalty is that it is a right incidental to the rights under S. 14. This interpretation also draws strength from the fact that S. 14 confers not only the right to do the acts mentioned therein but also “authorize” the doing of those acts. The royalty received would only be an incident of such an authorization by the right holder. If this interpretation is accepted, then it may follow that a suit for infringement for copyright can be filed for failure to pay royalty under S. 51 read with S. 55 of the Act (more on this later). Further, since S. 18 third proviso talks about a right to receive royalty for utilization of the work, this appears to be a royalty for any utilization of the work. Therefore, it should be exercisable against those who use the work and not only against the assignee of the copyright.

On the other hand, it could be argued that since the right to receive royalty is not one of the rights listed in S. 14, it cannot be considered as “copyright” within the meaning of the Act. Royalty is a term of a contract between the assignor and the assignee. Ss. 18 and 19 merely regulate this contractual term between the parties and state that a contractual term which contravenes these provisions would be void. This is similar to provisions in the Indian Contract Act which mandate that certain types of contractual obligations are void or voidable.

While both views are plausible, in our view, the second view fits better in the scheme of the Act for the following reasons:

1. The third and fourth proviso to S. 18 apply where the author has assigned the copyright. Therefore, the provisos, and the right to receive royalty, operate only in a contractual framework.

2. This right to receive royalty available to “authors” [not owners] of underlying works neither appears in S. 14 [which defines copyright] nor in S. 57 [which provides author’s special rights]. Rather this appears in Ss. 18 and 19, which regulate terms and mode of assignment between an assignor and assignee of copyright.

3. S. 19(3) was also amended by the 2012 Amendment; earlier S. 19(3) stated that the assignment of copyright shall specify the amount of “royalty, if any”. The provision was amended to state that the assignment of copyright shall specify “royalty and any other consideration payable”. The removal of “if any” clearly shows that the royalty is now a mandatory contractual obligation. This contractual obligation would of course only operate inter se the parties to the contract.

4. Similarly, earlier drafts of Ss. 19(9) and S. 19(10) used the terms “royalties or consideration payable”. The Standing Committee took into consideration the concerns that the use of the term “or” may be misinterpreted to mean that the payment of royalties is optional. It accordingly suggested changing the expression in these sections to “royalties and consideration payable”, thereby making it clear that royalty is a mandatory contractual term.

Thus, in our view, the right to receive royalty is not copyright within the meaning of S. 14 exercisable against the users of works; rather it is a statutorily mandated contractual term between the assignor and the assignee of the copyright in the underlying works.

B. Against whom can this “right to receive royalty” be exercised and what is the enforcement mechanism for exercising this right? 

If viewed as a contractual right, the right to receive royalty under Ss. 18 and 19 can only be exercised against the assignee of the copyright. The assignee of the copyright will collect the royalties from those who utilize the work and then share the same with the authors.

Under this interpretation, no suit for infringement of copyright will lie against third party users of copyrighted content. This interpretation is fortified by the language of Ss. 51 and 55 of the Act. You may recall that under the third proviso to Section 18, this inalienable right to receive royalty is provided to “authors” and not to “owners”. In contrast, Ss. 51 and 55 specifically refer to violations of rights conferred on “owners” of copyright and the remedies available to “owners”.

This contrast attains even more significance in light of the amendment carried out in S. 34 of the Act. To ensure that copyright societies can collect royalties on behalf of authors who may no longer be owners and that authors remain part of the royalty collection process, S. 34 was also amended by the 2012 Amendment to administer the “rights” [in contrast to copyright] of not only owners but also those of “authors”. The fact that S. 34 was amended to include the term “authors”, while Ss. 51 and 55 were not similarly amended, also seems to suggest that a suit for infringement against users of underlying works would not lie on behalf of the authors of these works. The “owners” i.e. the assignees of the copyright will be able to bring suit and any royalty collected would have to be shared in accordance with Ss. 18 and 19. However, an independent right of authors to sue for infringement of copyright does not appear to follow from the scheme of the Act.

The scheme of the Act ties rights granted with remedies – S. 14 rights [copyright] are enforced under S. 51 read with S. 55; S. 57 [moral rights] provides both the right and the remedy; Ss. 37 [broadcast reproduction rights], 38 [performer’s rights], and 38A [performer’s moral rights] rights are enforced under S. 55 read with S. 39A. 

This does not mean that authors of underlying works are remediless if they do not receive royalties from assignees or if the assignees fail to exercise the rights assigned to them. For instance, a question may arise, can the assignee/producers defeat the authors’ rights by licensing the sound recordings at a very high rate and licensing the underlying works at a pittance? In other words, can they undervalue the underlying works since it is only the royalty received for the utilization of the underlying works which has to be shared with the authors?

The answer lies in S. 19A of Act. S. 19A specifically empowers authors/ assignees to approach the IPAB with respect to any dispute with respect to the assignment and the IPAB can pass any order as it may deem fit, including an order for recovery of royalty payable. Importantly, under S. 19A, failure by the assignee to sufficiently exercise the copyright in the assigned work can even lead to revocation of the assignment. This provision thus gives the teeth to the right conferred by the amendments to Ss. 18 and 19.

Now that the Delhi High Court has held that the IPAB should perform functions under the Act even in the absence of a member technical (copyright), this battle ought to shift to the IPAB.