‘Win-Win Situation’: Compulsory Licensing Royalties Decided by Madras High Court

[This guest post is authored by Devangini Rai. Devangini is a graduate of the University School of Law and Legal Studies, Guru Gobind Singh Indraprastha University, New Delhi. She is an IP lawyer based out of New Delhi. Though she has represented the parties involved in this dispute in the past, the views expressed here are those of the author’s alone. She has previously written for SpicyIP here.]

Pronouncing yet another judgement in the compulsory licensing litigation under Section 31(1)(b) of the Copyright Act, 1957 which has spanned for more than two decades now, the Madras High Court delivered a judgement in April 2023 thereby deciding the appeals arising from a Copyright Board order of 2010. The appeals in the present matter pertain to the order dated 25th August 2010 passed by the erstwhile Copyright Board by way of which rates of a compulsory license under Section 31(1)(b) had been decided in rem against all music providers to license sound recordings to radio broadcasters who were parties to the appeal. The current post (fair warning: a long one!) deals with what the judgement as pronounced by the Madras High Court intended to deal with, and the questions that lie ahead of the judgement.

As a precursor to our readers, the statutory background of various licensing provisions in the Copyright Act is as follows:

Litigation History

To fully appreciate the compulsory licensing litigation that has spanned for more than two decades, a brief precursor on the litigation history leading to the infamous 2010 Copyright Board order is as follows:

1. The first compulsory licensing applications were decided in 2002 when the Copyright Board in the matter of Music Broadcast Private Limited and Ors. v. Phonographic Performance Limited decided the rate of royalty payable under a compulsory license as INR 1200 per needle hour during prime time (8 AM to 10 AM and 6 PM to 8 PM), INR 720 per needle hour during mean time (6 AM to 8 AM, 10 AM to 6 PM and 8 PM to 10 PM)  and INR 300 during lean time. (10 PM to 6 AM).
2. The Copyright Order 2002 was appealed by both parties before the Bombay High Court. The Bombay High Court set aside the Copyright Board Order 2002 and remanded the order back to the Copyright Board for reconsideration. This was also reaffirmed by the Supreme Court in the case of Entertainment Network of India Limited v. Super Cassettes India Limited in 2008 where the Hon’ble Supreme Court remanded the matter back to the Copyright Board to hear the matter afresh on merits after appreciating the evidence led by parties.  (see here and here for posts on this order by Prof. Basheer and Krutikka Vijay.)
3. The 2010 Copyright Board while hearing the matter afresh had the radio broadcasters namely Music Broadcast Limited, Entertainment Network of India Limited, Radio Mid Day West (India) Limited, Puran Multimedia Pvt. Ltd., Synergy Music Entertainment Ltd. and Rajasthan Patrika Private Limited against the copyright society Phonographic Performance Limited (PPL). It was the 2010 Copyright Board order that came after the matter was heard again which gave a shockingly absurd finding of fixation of rates in rem. As per Section 31(1) (b) of the Copyright Act, a license can only be granted for the works of an owner once the owner has been given a reasonable opportunity of being heard by the Commercial Court / erstwhile Copyright Board. However, as per the operative part of the 2010 Copyright Board order, a rate of 2% of the Net Advertisement Revenue (NAR) of the earnings of each FM Radio station was fixed for all music providers including the music providers who were never party to the matter.

Hence, the 2010 Copyright Board order came to be appealed (see here and here) on the following grounds amongst other procedural grounds:

1. Whether the impugned order is applicable to South India Music Company Association (SIMCA)?
2. Whether the compensation determined by the CB has to be upheld or set aside or modified/varied?
3. Whether the Copyright Board was correct in comparing FM Radio stations with AIR and the modalities of royalty payable with foreign radio stations?

Therefore, largely, the Copyright Board order of 2010 was appealed on grounds of natural justice, methodology of fixation of royalty and quantum of royalty.

Findings

1. On Principles of Natural Justice: An unsettling finding of the 2010 Copyright Board order which had wide ramifications across board was that the royalty rate decided by the Copyright Board was made applicable in rem despite Section 31(1)(b) being a provision that only allowed the rates to set in personam. Expectedly so, the Madras High Court held that the findings of the 2010 Copyright Board order cannot be made applicable in rem. The Madras High Court further held that since SIMCA was not a party before the 2010 Copyright Board order, it had been seriously prejudiced by the order made ­in rem by the Board and allowed the appeals made by SIMCA.
2. Methodology of fixation of Royalty/Quantum of Royalty: The question of quantum and methodology of fixation of royalty has been a hotly debated issue with both appellants and respondents leading evidence of varied prevailing market rates to determine the quantum of royalty and its methodology of fixation.

There are two categories of royalty fixation methods that have been espoused by music labels and radio broadcasters over the years which can be briefly summarised as follows:

• Needle Per Hour (NPH)/ Per Needle Hour (PNH) approach: As per the Needle Per Hour or Per Needle Hour approach, the royalty is determined on the basis of the playout of the songs in one hour. It is calculated on the basis of the actual utilisation of a sound recording by the radio station. The rates are classified on the basis of prime time (seen as the time slot where maximum listeners tune in the radio and hence the highest rate), mean time and lean time. The rates are also classified on the basis of tier of cities being A, B,C and D. (A case in point of royalty rates set as per the NPH/PNH model for broadcast over radio is the statutory licensing rates in the 2020 IPAB order.)

• Net Advertising Revenue (NAR): As per the Net Advertising Revenue system, a percentage of the advertising revenue generated by radio stations is determined as royalty to be paid for broadcast of sound recordings to the music owners.

As noted by the court, a perusal of the evidence led by the parties reveals that the radio stations supported for a per needle hour approach and stated that a rate of INR 750 PNH would be acceptable to them. On the other hand, PPL stated that a rate of INR 1200 PNH would be a reasonable rate. Further, it was PPL that also espoused for a Net Advertising Revenue model only when it can be properly adjudicated for remote areas as well.

Certain accentuating factors such as the past litigation history (where the 2002 CB Order decided the rate on a NPH/PNH model, and the 2010 CB Order which decided on the basis of NAR Model), pleadings of parties but contrasting evidence led by witnesses, and with an intention to find a one fits all solution to the question of royalty, the Hon’ble Madras High Court decided to go for a hybrid model of royalty fixation. The Court upheld the 2% NAR rate set by the 2010 Copyright Board order while also setting a minimum platform rate of INR 660 PNH to be paid by the respondents. The findings of the Madras High Court reveal an endeavour to balance equities despite narrow grounds of appeal under Order XLI of the Code of Civil Procedure and a conscious effort to not remand back the matter to the Commercial Court for a fresh hearing.

Currently, special leave petitions have been preferred against the judgement passed by the Madras High Court by the radio broadcasters. While the orders of the Madras High Court continue to be in operation, the Hon’ble Supreme Court in the Special Leave Petitions has passed orders stating that any payments made under the Madras High Court order shall be subject to final determination by the Hon’ble Supreme Court in the SLP proceedings.

Analysis (and Potential Questions)

The Madras High Court’s intent of reaching at an amicable solution echoes widely throughout its findings, even if they may not strictly be under the powers of a court of appeal. However, certain shortcomings in the order arise.

• The quantum of minimum platform rate: The Court in an attempt to adopt a hybrid model has sought to keep the minimum floor rate as INR 660 PNH to account for any possible attempt of royalty payments being throttled by radio broadcasters by projecting lower revenues. The intent to keep the radio broadcasters in check is well appreciated. However, the minimum floor rate should have been subject to an increase from a value that has been in existence for the past two decades as pronounced in the 2002 CB Order. One wonders whether the minimum floor rate takes into account the prevailing standard of rates and inflation?

• Future works: In a sweeping statement, the Madras High Court has held that the 2% NAR rates will account for fluctuation in advertising revenues and thus cover future licenses as well. However, Section 31(1)(b) explicitly allows for licenses to be fixed only for works under copyright that have already been published. Therefore, the findings by the Hon’ble Court go beyond the statutory mandate of Section 31(1)(b). A similar question when arose in the 2020 statutory licensing proceedings before the IPAB saw a contrary finding from the Tribunal. It was held that Section 31 excludes future works from the jurisdiction of the tribunal for fixation of royalty. It is clear why the Hon’ble Court chose to allow the rates for future works- to reach a workable solution for royalty fixation and set free the parties from adversarial litigation. When provisions such as compulsory and statutory licensing provisions are invoked by the radio broadcasters, the act of rates being fixed for only published works has long been harped upon by radio companies as unworkable. Therefore, in the larger scheme of things, this also raises a question of whether the licensing options under Section 31(1)(b) and Section 31D are industry-friendly at all?

• Whether NPH model is the only way forward? It has been significantly observed by the Hon’ble Madras High Court that the NPH/PNH model of royalty payments had always been adopted by the radio broadcasters, at least in their pleadings. It was only PPL that argued for the first time for an NAR model of royalty payments in its Counter Affidavit. A perusal of Rule 8 (ii) of the Copyright Rules, 2013 indicates the possible indicators that a Commercial Court may take into consideration while deciding the quantum of royalty. These indicators include time slots in which the broadcast takes place, different rates for different classes of works, prevailing standards of royalty and any other matters that may be considered relevant. The indicator of ‘time slots’ has been held in the 2020 IPAB statutory licensing order to reflect a NPH/PNH system of royalty payment. Added to this, NPH/PNH system was largely followed in the music industry prior to the 2010 Copyright Board order, and was continued to be followed by big market players in the industry like Super Cassettes Industries Private Limited which refused to be bound by the 2010 Copyright Board order. (A more detailed history of the music industry and reasons to adopt the NPH/PNH model can be found in the 2020 IPAB Order). Therefore, the mere adoption of the 2% NAR royalty rate by the Madras High Court as pronounced by the 2010 CB order-which was never a voluntary rate- is questionable.  

While the compulsory licensing matters are currently pending before the  Supreme Court, the statutory licensing proceedings arising from the IPAB order are also under appeal at the Delhi High Court. The proceedings before the Delhi High Court also challenge the quantum of royalty which can very well be expected to be ultimately settled by the Hon’ble Supreme Court only. It remains to be seen what shall the Hon’ble Supreme Court decide in the long-standing royalty disputes which continue to plague the music and radio industry alike. Win-win situation? Not likely so.