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Statutory licensing for content not applicable to the Internet, says Bombay High Court

The Bombay High Court has granted an interim injunction in favor of Tips Industries against Airtel-owned music streaming service Wynk. Tips had sought a temporary order restraining Wynk from enabling downloads and streaming of Tips music.

What led to this lawsuit was a fallout between the two over royalties, and Wynk invoking a statutory license for streaming Tips’ music.

Wynk had earlier licensed music from Tips – which claims a catalog of over 25,000 songs – for Rs 1.31 crores, via an agreement dated 22nd August 2014. This agreement expired on 31st August 2016. Wynk extended the agreement till 31st October 2016, on a condition that a written agreement would be executed by then, failing which they would stop using the music by November 7th 2016, with a liability to pay for usage till this period. Tips demanded a minimum guarantee of Rs 4.5 crores for 2 years (2 crores in the first year and 2.5 crores in the second), and Wynk claims that this offer was rejected on 24th April 2017. Negotiations failed on 27th April and 5th May, and on 17th November 2017, Tips sent a cease and desist notice to Wynk, instructing them to remove Tips music content by 1st December 2017. In reply, Wynk on 24th November 2017, invoked Section 31-D of the Copyright Act, 1957, claiming to be a broadcaster, saying that they were “entitled to a statutory license”, which allowed them to communicate the music work to the public via broadcast.

This ruling (download here) is particularly significant given a similar battle between Spotify and Warner music in India. As per the IFPI GMR Report, internet streaming in India contributes to 70% of the revenues of the recorded music industry.

In a statement sent to MediaNama, Tips MD Kumar Taurani said that “We are not in a business to arm twist or provoke unnecessary actions onto our partners in the OTT business; but in our case in particular; Wynk was very unfair. Wynk as an Internet music streaming service has valuations in millions, despite that they still refuse to pay to music labels few crores, for the labels’ music content, which is the heart of Wynk’s OTT streaming service, and without a heart, what good is a body. OTT players until this judgement continued to corner us.”

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Compulsory licensing for the Internet was flagged as a key policy concern by the Indian Music Industry last year. Shridhar Subramaniam, President of Sony Music, India & Middle East, and Chairman of the Indian Music Industry (IMI) had then said that, “These same large companies lobby with the government and insist on statutory and compulsory license provisions, to further diminish our value. The recent notification about whether statutory licenses are applicable on internet companies, is worrying.”

This ruling clarified several issues related to online provisioning of services, including treatment of offline storage of music, permanent downloads of music, fair usage, whether statutory license is applicable to the Internet space, and whether the appellate board can fix rates for online streaming:

Enabling offline access while accepting subscription fees amounts to commercial rental

Wynk’s download business contains two separate features: download/rental (where copies can be played only within the Wynk application for the period of subscription), and purchase (where songs are permanently made available on the users device); Wynk had stopped the purchase feature.

The term ‘commercial rental’ in the context of the activities of Wynk, applies to the enabling the download of sound recordings and the availability of access to the service in lieu of a monthly subscription fee. This activity does not fall under the exclusions provided to the definition of commercial rental (rental for non-profit purposes by non-profit libraries and non-profit educational institutions). The download subscription option offered by Wynk in lieu of a monthly subscription fees, according to the court, violates the exclusive right of Tips to give on commercial rental a copy of its sound recordings. The counsel for Tips had argued that the copyright owners rights to sell/commercially rent sound recordings are distinct from the exclusive right to communicate the work to public.

Enabling offline access without authorisation is a copyright violation

Non-payment of subscription fee leads to the withdrawal of access to the content, until the subscription is restored. Wynk is enabling customers to download the recording and access them offline in lieu of a subscription fee. Downloaded songs are nothing but copies of Tips’ music stored on the customers device, and enabling that without authorisation is a violation of the copyright of Tips.

Enabling permanent downloads upon payments is a sale of the sound recording

In case of permanent download subscription option, mirror copies are saved on the customers device, and can even be copied further, and played via any app. This also virtually amounts to a sale of the sound recording by Wynk. “Such feature of permanent download subscription option offered by the Defendants (Wynk) to their customers to permanently download sound recordings and have a permanent access to the same once paid for, amounts to sale of the sound recordings and thereby violates the exclusive right of (Tips)…”

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On Fair usage and transient storage

Wynk argued that allowing the user to listen to the music on the app for personal use constitutes “fair dealing”, and isn’t copyright infringement, and is akin to a member of the public making a copy of the song for personal use; that the storage is protected as being transient and incidental storage, and does not amount to copyright infringement.

The order states that the use of a copyright, to be fair, must not:

a. Commercially compete with the owner’s exploitation of the copyright work or be a substitute for the probable purchase of authorized copies.
b. Publish a work that has not already been published.
c. Take an excessive amount of the copyrighted work. The taking of even a small amount on a regular basis may negate fair dealing.

The ruling said that the defence of fair use may be available in a given case, to an individual user. The “activities of the [Wynk] can never be termed as ‘private’ or ‘personal use’ or ‘research’”, and that they’re clearly selling/commercially renting the sound recordings, and thus this cannot be termed as fair dealing for the purpose of private/personal use.

Wynk said that the copies of the sound recordings available on the app are transient/incidental to the service provided by Wynk, and this activity is permissible under Section 52(1)(b) of the Copyright Act. Tips said that this is neither transient nor incidental: the services are advertised on the premise that customers can store the files for offline usage, and that’s a unique selling point of the service, and it thus isn’t incidental. The storage can also not be termed as transient since the physical file stored remains on the user’s device and is not deleted. The court rules that the storage is not transient nor incidental.

Copyright Act doesn’t allow for a Statutory License for the Internet

The primary issue was whether Section 31-D of the Copyright Act, which allows for statutory license for enabling public access to music can be invoked by Wynk in this instance. The judgment says that it has already been ruled (explained above) that the services of Wynk amount to commercial rental/sale of the sound recordings, and thus that is distinct from the right to communicate the recording to the public. However, Wynk also offers on-demand streaming services, and claimed to be a broadcasting organisation.

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Broadcast has been defined under Section 2(dd) of the Act as:
dd. “broadcast” means communication to the public–
(i) by any means of wireless diffusion, whether in any one or more of the forms of signs, sounds or visual images; or
(ii) by wire, and includes a re-broadcast;”

Tips argued that the grant of Statutory License under Section 31-D is only restricted to radio and television broadcasting organisations, and not “internet broadcasting organisation”, which do not fall within the purview of Section 31-D of the Act.

The counsel for Wynk argued that making the music available without issuing a physical copy, during the subscription to the service, is within the purview of “communication to the public” and does not constitute commercial rental/sale of the sound recording. Wynk relied upon Section 31-D(1) of the Act refers to “any” broadcasting organisation, and Sections 2(dd) and 2(f) of the Act which use the phrases “any means of wireless diffusion” and “any means of display or diffusion other than by issuing physical copies” to suggest that the intent “any broadcasting organization, which is broadcasting / communicating to the public by any means of display or difusion including wireless and wired difusion, is entitled to a Statutory License under Section 31-D of the Act.” He contended that Internet broadcasting falls within the term radio broadcasting, because Wynk is broadcasting audio recordings.

The counsel for Tips said that the only two types of broadcasting contemplated by Section 31-D are radio and television broadcasting, and that Section 31-D (3) says that royalty rates for radio and TV broadcasting must be different, and fixed by the Appllate Board, and does not look into any other mode of broadcast. Thus the Appellate board cannot fix royalty for Internet broadcasting.

The court concurred, saying that “The absence of express words in Section 31-D providing for a Statutory License in respect of internet streaming and / or downloading, was a conscious legislative choice”, especially given that the Copyright Act (2012) is a modern law and took the existence of the Internet into cognaisance.

The court also ruled that “the contention of [Wynk] that they are broadcasting sound recordings over internet and that internet broadcasting is a type of audio broadcasting and hence internet broadcasting falls within the term ‘radio broadcasting’ is misplaced.”

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It seems that Wynk had submitted Rs 10 lakh as royalty in November 2017 to the Appellate board, despite the board not having notified rates for Internet broadcast, saying “Since the Hon’ble Appellate Board is yet to notify the rates for such broadcast, we are tendering a sum of Rs, 10,00,000/- being the 1st tranche payment of royalty as was to you pursuant to the license agreement”. Wynk argued that Section 31-D automatically kicks in upon giving prior notice and without fixation of rates.

However, the ruling points towards the Super Cassettes Industries v. Music Broadcast (supra) verdict in the Supreme court, saying that the SC ruled against the Appellate Board’s ability to grant a temporary Compulsory License in the absence of an express statutory provision conferring such power. Similarly, in the absence of an express statutory provision permitting the Appellate Board to fix the rate of royalty for Internet broadcasting, as per the Court, means that “the Appellate Board lacks jurisdiction to fix rate of royalty for internet broadcasting.”

Statutory license requires prior fixation of rates by the Appellate Board

The court ruled that, besides the issue that the Appellate board cannot fix royalties for the Internet, it is common ground that fixation of royalty rates would precede advance payment of royalty, and as such the fixing of rates is a pre-condition for invoking a statutory license.

Section 31-D(2) imposes two conditions upon a broadcasting organisation, the ruling says: (i) to give prior notice to the owner of the copyright and (ii) to pay royalties in the manner and at the rate fixed by the Appellate Board.
This means that the rate of royalty must be fixed by the Appellate Board prior to the broadcast.

“Hence, Statutory License under Section 31-D of the Act does not ‘automatically kick in’ once notice is sent to the owner, without fixation of royalty rates by the Appellate Board.”

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Written By

Founder @ MediaNama. TED Fellow. Asia21 Fellow @ Asia Society. Co-founder SaveTheInternet.in and Internet Freedom Foundation. Advisory board @ CyberBRICS

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



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