IPAB’s Statutory Licensing Order Is Off-Key

The case is an unfortunate reminder that the Indian legal system simply lacks capacity to deal with complex commercial litigation.

A man listens to the radio in Kraska village, Rajasthan, on April 16, 2018. (Photographer: Anindito Mukherjee/Bloomberg)
A man listens to the radio in Kraska village, Rajasthan, on April 16, 2018. (Photographer: Anindito Mukherjee/Bloomberg)

On the last day of 2020, the Intellectual Property Appellate Board delivered a judgment in a statutory licensing dispute under the Copyright Act, 1957 between the music labels and the radio broadcasters over the royalty payable by the latter for broadcasting copyrighted music over their airwaves. While neither side has publicly proclaimed victory, it appears that the radio broadcasters, mostly owned by news publishers including the Hindustan Times, Bennett Coleman, Rajasthan Patrika, have lost this round of litigation.

There is a long, litigious history between radio broadcasters and the music industry. This particular order is unfortunately reflective of the weak capacity of both the Indian judicial system and its legal fraternity, including marquee senior advocates, to handle complex commercial litigation.

First Some History

The first round of litigation between the radio broadcasters and the music labels kicked off after the government allowed private radio stations in India in the 1990s. Almost immediately, there was litigation between the labels and broadcasters over royalty rates for copyright-protected music. At the time, the major copyright societies like Phonographic Performance Ltd. (PPL) and the Indian Performing Rights Society (IPRS) functioned essentially like a legalised cartel because almost all copyright owners were members of these two societies.

Given the lack of competition, radio broadcasters were faced with a demand for high royalties from PPL, at which point they invoked compulsory licensing provisions in the Copyright Act, by asking the erstwhile Copyright Board to fix royalties. The Copyright Board after hearing arguments set royalties in 2002. The matter worked its way on appeal to two different High Courts and then reached the Supreme Court. In 2008, the Supreme Court set aside the Copyright Board’s judgment because it failed to comply with basic procedural law, apart from failing entirely on the legal issues.

A new Copyright Board was constituted, which reheard the entire case, this time with expert witnesses like Bibek Debroy playing a starring role in depositions on behalf of either party and recommending royalty rates to the Board. The Copyright Board fixed the royalty rate at 2% of the advertising revenue of the radio stations against the ask of the music labels which was at 20%.

One round of appeals was filed before the Madras High Court in 2010 against the order of the Copyright Board. Ten years later, those appeals have not yet been heard by the High Court. Since the original order of the Copyright Board expired in ten years, it was inevitable that litigation was going to take place on this issue once again in 2020. By this time, the Copyright Board had been merged with the IPAB under the Finance Act, 2017, and the Copyright Act itself was amended in 2012 to include a statutory licensing scheme specifically for radio and television broadcasters.

Unlike a compulsory licensing system which requires a party to establish that a copyrighted work was being withheld from the general public due to high royalties etc., a statutory licensing regime enables broadcasters to demand a license as a matter of right, in which case the only point to be adjudicated before the IPAB is regarding the quantum of royalties.

The Absence Of Cross-Examination

The issue of royalty rates in such a context is a question of fact that can be proven only through expert witnesses who understand the industry and its economics. They are the most important stars of a statutory licensing case, not the lawyers, because it is their ability to propose a convincing royalty formula and withstand a cross-examination that determines the outcome of cases. As mentioned earlier, India has performed this exercise earlier when expert witnesses like Professor Bibek Debroy testified before the Copyright Board in 2010.

Shockingly, this time around, the court records that both the radio broadcasters and music labels waived their right to cross-examine the opposing expert witnesses.

This is simply astonishing because the only way to point out flaws in the opposing witness’ testimony is to cross-examine them and force them to admit their mistakes on the record, thereby discrediting their testimony. In its 2008 judgment, the Supreme Court had pulled up the Copyright Board for refusing to allow cross-examination. The court noted, “…we do not approve the manner in which the Board has dealt with the matter. It has refused to examine the witnesses.” Yet the order of the IPAB notes that “All parties have made the statement that the recording of statement of witness is not necessary in view of documentary evidence already produced. The matter be decided on the basis of pleadings, documents and legal issues.”

It is most surprising that the marquee (and high-priced) lawyers on both sides agreed to waive this most crucial aspect of a proceeding to fix royalties.

The ostensible reason for waiving this crucial right, according to the IPAB’s order, was an obscure rule requiring statutory licensing procedures to conclude in 2 months from the issuance of notice. But when the government provides only one bench of the IPAB to hear such matters, it follows that it is impossible to follow the 2 months mandate especially when there are nine applications for statutory licences filed before the IPAB at the same time.

The perils of surrendering the right to cross-examine become evident on a reading of the IPAB’s order. While narrating the contents of various reports of various experts or agencies submitted by different parties, the IPAB notes how the various parties were alleging inaccuracies in each other’s reports. Well, that’s the entire purpose of a cross-examination – to get the authors of expert reports to defend, under oath, their royalty models.

How is a court to make this determination of accuracy without the benefit of witnessing a cross-examination?

IPAB As A Court Of Law And Not A Regulator

In addition, the IPAB appears to have misunderstood its role entirely since it keeps referring to the proceedings as non-adversarial and ‘consultative’ because of which it heard even ‘third parties’ to the dispute. This candid admission betrays an astonishing lack of understanding of its role in this dispute. The IPAB is not discharging a regulatory function like TRAI. In Indian jurisprudence, the Supreme Court has equated copyrighted content to property, that can be used by others only on payment of reasonable compensation, and property disputes like land acquisitions have always been adversarial in India.

Thus, a statutory licensing proceeding to compensate for use of ‘property’ is most certainly an adversarial affair and third parties have no role to play. This fundamental misunderstanding of its role by the IPAB is reason enough for an appellate court to overturn the entire judgment.

A New Mode Of Calculating Royalties

In any event, this case does appear to be a victory for the music labels since it has completely changed the mode of calculation from a percentage of the advertising revenue of the broadcasters to the needle hour system which is what the music labels had demanded of the IPAB.

The needle hour system basically calculates the royalty based on the amount of time the music is played by the radio broadcaster, irrespective of the revenues of the radio station. The needle rate has been fixed by the IPAB for different cities at different rates that have been pegged to the royalty rated paid by All India Radio to music labels, with variations for different time-slots.

An Illegal Detour

Whether this judgment sustains on appeal is doubtful not only because of the aforementioned issues, especially the court’s misunderstanding of its role in this case, but also because of a strange detour taken by IPAB to recognise the right of another copyright society – the Indian Performing Rights Society – to receive royalties from broadcasters. This despite the broadcasters not even seeking a licence from IPRS because their legal strategy depends on judicial pronouncements that virtually negate IPRS’s ability to charge royalties from broadcasters. Despite not being made party by the broadcasters, IPRS sought to implead itself.

However, a statutory licensing proceeding is no place to decide issues of ownership and title to music. IPRS can seek such remedies only before the civil courts i.e. if the broadcasters play its works without a license, IPRS can sue them for copyright infringement. The IPAB does not have the jurisdiction to decide IPRS’s legal right to demand royalties from broadcasters. The tribunal was required to simply eject IPRS’s application for intervention. It did not do so and instead allowed IPRS to participate in the proceedings and adjudicated on its right to receive royalties.

Ten years after the last order of the Copyright Board one would have expected institutions to have evolved. Instead, the exact opposite has happened. The manner in which both the bar and the bench have handled this case is deeply disappointing. This case is an unfortunate reminder that the Indian legal system simply lacks the capacity to deal with complex commercial litigation and that is a reflection on just the bench but also on the bar.

T Prashant Reddy is a Bengaluru-based advocate.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.