When Tribunals make law - the Overarching Powers of the Copyright Board

[This post is contributed by Mr. Ananth Padmanabhan. Mr. Padmanabhan is also the lawyer for the South Indian Music Companies Association (SIMCA). SIMCA has presently challenged the order of the Copyright Board dated 25^th August, 2010. His views in general, and this post in particular, should be understood with this background in mind. He can be contacted at ananthdevadevan[at]gmail[dot]com for all feedback and responses.]

Judges do not make law, they merely declare it

– Attributed to some wise soul who didn’t have the clairvoyance to see what was coming.

On 25^th August, 2010, the Copyright Board, without a single judicial member in its constitution (the term “judicial member” being understood in the context of the NCLT judgment – Union of India v. R. Gandhi), has passed an order fixing the rates of royalty payable to all music providers by various FM radio broadcasters. The Order raises serious concerns about the tribunalisation of justice, the manner in which complex questions of law are decided by bodies such as the Copyright Board, and the ease with which mandatory statutory limitations on the exercise of power are overlooked.

It was in 2002 that the first complaint under Section 31 of the Copyright Act, 1957, for grant of a compulsory license was filed. The complainant was Music Broadcast Pvt. Ltd., better known to the world as “Radiocity 91.1 FM”. Mr. Nikhil Krishnamurthy, a product of the National Law School of India, Bangalore, was a chief architect of this first draft, which has now become the template for a Section 31 complaint. As Mr. Krishnamurthy later told me, there wasn’t, and still isn’t, any prescribed form under the Copyright Rules for a complaint under S.31 that seeks compulsory license for the broadcasting of sound recordings.  Interestingly, the fee payable for this complaint as per the 2^nd Schedule to the Copyright Rules is Rs. 200/- per work but the radio broadcasters got away with paying the same amount for the entire repertory of works belonging to the respondent.

Which in turn brings us to the identity of the respondent. The respondent in all the complaints (subsequently complaints were filed by the RadioMirchi and RadioOne stations as well) was the Phonographic Performance Ltd. (PPL), the only registered copyright society under Section 33 of the Act that is authorized to carry on the business of licensing copyrights in sound recordings and distributing the revenues to their members. In its status as a copyright society, and as part of its obligation, PPL had formulated a tariff scheme with the needle hour [“needle hour” is the actual time for which music is played in one hour, after excluding the advertisements, radio jockey talk etc. – internationally, the convention for radio broadcasting is that 38 minutes in an hour would be for the music and the rest for the excluded component] rate of royalty for prime time [conventionally, between 8 to 10 in the morning and 6 to 8 in the evening] fixed at Rs. 2400. The prayer in all these complaints was, short of all legalese, a direction to the Registrar of Copyrights to grant compulsory licenses in respect of all the sound recordings belonging to the repertory of PPL. The allegation was that Rs. 2400 was way too high. An interim order soon followed where the Board applied its “best judgment assessment”, akin to that in taxation law, and fixed the interim rate of royalty at Rs. 1200 per needle hour for the prime time.

When this order was taken on appeal to the Bombay High Court, the Hon’ble Court found the methodology adopted by the Board to be unacceptable. The Board was found to have ignored various relevant factors including the existing license agreements that had been entered into voluntarily between some of the radio broadcasters, including All India Radio, and PPL and its members. Subsequently, the matter went on appeal from Bombay to the Supreme Court, where the Hon’ble Court refused to fix any principles of valuation and left that to the Board’s discretion. The case was remanded to the Board after settling the law on the effect of Section 31(2) on the licensing scheme under 31(1)(b). The Supreme Court also categorically observed that the owner of the copyright had to be heard before any order was passed by the Board directing the grant of a compulsory license.

The battleground shifted to the Board with both sides leading extensive evidence on practices all over the world, the impact of radio on audio and CD sales, the profitability of FM radio stations and music companies, and various other factors that could have a bearing on the final royalty fixed. Without any incisive reasoning, the Board has fixed the royalty now at 2% of the net advertisement revenue, after excluding municipal taxes, and deducting commission paid to procure these advertisements, with a cap of 15% of the gross revenue on this deduction. Honestly, it is difficult to figure out from this order as to how this percentage can even be worked out in a transparent manner.

The order also discloses very little on how exactly the 2% was arrived at. My only guess is that 2% is somewhere between the 0.25 to 4 %, which is what the international evidence pointed to as being the rates of royalty. Quite a different matter that the structure of the industry is so very different abroad. In the West, royalty payments are the norm at every link in the chain. To illustrate, a music composer or songwriter enters into an agreement with the publisher whereby they share the royalties received from all modes of exploitation of the music. Subsequently, the recording artist, the radio broadcaster, the businessman who uses this music as part of his advertisement or even the actual product, all enter into revenue sharing arrangements with the publisher. Thus, there is no acquisition of music for a lumpsum at a huge risk. In India on the other hand, the producer pays lakhs or even crores to the music producer to create the music, and gets the copyright in the work assigned to him. Subsequently, the producer looks to recovering nearly 15% of the film’s total cost of production by selling the audio rights to the sound recording label. The sound recording label therefore assumes a huge risk on its head by acquiring the audio rights for a lumpsum, and this in turn has to be recouped from various avenues including FM radio broadcasting. For this reason, a needle hour rate is much more suited to the Indian music industry.

Regardless of all this, my fundamental problem with the Board’s order is with the manner in which the Board has ignored its statutory limitations. The two pre-conditions under Section 31 are i) an unreasonable refusal by the owner of the sound recording to permit its broadcasting; and ii) a complaint by the radio broadcaster alleging how the rates are unreasonable. Despite both these conditions not being satisfied, the Board has fixed the rate of royalty for several music providers who were not members of PPL and went unrepresented before the Board. On the ground of violation of principles of natural justice, the Delhi High Court has now stayed the Board’s order on a writ petition filed by T-Series. A slew of appeals are also pending before the Madras High Court challenging this order, including appeals by PPL and SIMCA.

This case is to be viewed in a larger setting, being that of increasing tribunalisation. The reasons given often enough to justify the vesting of extensive powers with tribunals are specialized justice, expeditious disposal and docket explosion in the Courts. Unfortunately, the specialized Copyright Board has passed an order ignoring the most fundamental principle of adjudication, which is that the aggrieved person must be heard. Section 31 confers this right of hearing to the owner of the copyright and yet, the Board has ignored its limited mandate to fix the royalty for the entire nation without hearing all the stakeholders. It is time the Ministry of Human Resource and Development takes serious note of such orders that only lead to more litigation and consider re-constituting the Copyright Board with members who possess judicial expertise and experience.