25 May 2012

New Film and Music Royalties under the 2012 Copyright Act

The Copyright Amendment Act, 2012, (the ‘2012 Act’) clearly states that film performers (mentioned in a film's credits) as well as the authors of certain underlying works used in cinematograph films and sound recordings have a (largely non-assignable) right to continuing royalties for the use of their works or live performances in certain circumstances regardless of the fact that they may have assigned the copyright in those works or the fact that they may not be entitled to the enjoyment of a performer's right. (“Cinematograph films” in terms of the Copyright Act includes both feature films and television serials – in the interest of convenience, the term “films” has been used here instead of “cinematograph films”.)

The relevant provisions of the 2012 Act which deal with the continuing right to royalty are in respect of the authors of underlying works incorporated into films and sound recordings are contained in:
  • Two provisos inserted into Section 18 of the Copyright Act:
Provided also that the author of the literary or musical work included in a cinematograph film shall not assign or waive the right to receive royalties to be shared on an equal basis with the assignee of copyright for the utilization of such work in any form other than for the communication to the public of the work along with the cinematograph film in a cinema hall, except to the legal heirs of the authors or to a copy right society for collection and distribution and any agreement to contrary shall be void:

Provided also that the author of the literary or musical work included in the sound recording but not forming part of any cinematograph film shall not assign or waive the right to receive royalties to be shared on an equal basis with the assignee of copyright for any utilization of such work except to the legal heirs of the authors or to a collecting society for collection and distribution and any assignment to the contrary shall be void.
  • Three new sub-clauses inserted into Section 19 of the Copyright Act:
19(8) The assignment of copyright in any work contrary to the terms and conditions of the rights already assigned to a copyright society in which the author of the work is a member shall be void.
19(9) No assignment of copyright in any work to make a cinematograph film shall affect the right of the author of the work to claim an equal share of royalties and consideration payable in case of utilization of the work in any form other than for the communication to the public of the work, along with the cinematograph film in a cinema hall.
19(10) No assignment of the copyright in any work to make a sound recording which does not form part of any cinematograph film shall affect the right of the author of the work to claim an equal share of royalties and consideration payable for any utilization of such work in any form.
In addition to the right to continuing royalty which the authors of underlying works enjoy, a new Section 38A which deals with the performer’s rights (as restructured by the 2012 Act) states:
Provided that, notwithstanding anything contained in this sub-section, the performer shall be entitled for royalties in case of making of the performances for commercial use.
Read with Section 2(qq) of the Copyright Act defining a ‘performer’ (with the incorporation of the 2012 amendments), this effectively means that all film actors (who are mentioned in film credits) would have a continuing right to royalty for the commercial use of their performances. Pertinently, however, the definition of a performance under Section 2(q) of the Act includes only live performances, and as such, applying the right to continuing royalties to film performers would require the statute to be interpreted purposively. (Details here.)

From the placement of the clause allowing continuing royalty to film performers in Section 38A(2) of the Act, it appears that it is only film performers who are entitled to receive continuing royalties. However, this has not been spelt out by the Act itself, and it is possible that the performers of sound recordings would also be entitled to enjoy continuing royalties; it is also possible that no specific provision was made relating to performers in sound recordings because it was deemed to be obvious that they would be entitled to continuing royalties.

As such, as far as those involved in the production of films are concerned, there are several ‘new’ categories of persons who must be paid royalties under the Copyright Act:


No.WorkPersonsAmount Use
1 Film Scriptwriter, Lyricist, Composer Royalties to be shared on an equal basis with the assignee of copyright Non-theatrical use
2 Film (and, possibly, sound recording) Performer (who in the case of a film is not an ‘extra’) Unspecified Commercial use of their performances
3 Non-film sound recordings Lyricist, Composer Royalties to be shared on an equal basis with the assignee of copyright Any utilization of the underlying works in any form

The provisions, however, are not a model of clarity. Apart from the use of phrases susceptible to interpretation to define the kind of use for which royalties would be payable to the authors of underlying works, a major source of confusion in the 2012 Act is how much royalty would be payable and by whom.

LIABILITY TO PAY THE CONTEMPLATED ROYALTIES

Not one of the provisions dealing with the requirement that the specified authors and performers be paid royalties specifies who would be responsible for making the royalty payments. Presumably, the assignees – that is, the persons to whom rights were assigned by the authors (generally, producers) – would be responsible for ensuring that the royalties were paid. However, the law does not explicitly state that it is the assignees’ responsibility to ensure that these payments are made.

All that the 2012 Act states, in a proviso to Section 33 is that ‘the business of i[s]suing or granting license in respect of literary, dramatic, musical and artistic works incorporated in [a] cinematograph films or sound recordings shall be carried out only through a copyright society duly registered under this Act’. This seems to merely keep content aggregators continue in the business of mass licensing the copyright subsisting in works without any statutory control.

As such, in the absence of statutory guidance, it would be prudent for those acquiring rights from assignees to include (in their content acquisition agreements) clauses which specifically state that producers will ensure that the royalties payable under the 2012 Act are in fact paid to the authors of underlying works and to performers, and that the assignees will indemnify those to whom they grant rights for any consequences of non-payment.

THE CALCULATION OF ROYALTY

The other issue which is a cause of considerable confusion is how much royalty is payable. As far as performers are concerned, there is absolutely no explicit indication in the 2012 Act of what they are entitled to. It may be possible to argue that a reading of Section 38A (which grants performers the right to royalties) along with Section 39A (which makes the provisions relating to copyright licences and assignments applicable to the performer's right) and Sections 18 and 19 (which grants a continuing right to royalties to the authors of the underlying works in films and sound recordings) provides an answer – Sections 38A, 39A, 18 and 19 may together indicate that performers are entitled to an equal share of royalties in like manner as the authors of underlying works. Whether or not this is the case is, however, a matter of speculation (as is much else in this area of law).

As far as the authors of underlying works are concerned, the exact manner in which royalty will be calculated is extremely unclear. While the 2012 Act speaks of “royalties to be shared on an equal basis with the assignee of copyright” as far as the authors of underlying works are concerned, there is little clarity on what this means and several options could exist. The royalty payable to the author of an underlying work would be a share of the royalty received for the performance of the work. As such, it is the performance right of the relevant underlying work alone for which royalty would be payable. For example, if one were to consider revenues earned from songs alone:

Option 1:

It is possible that the rights within a work would not be separated, and the revenue earned from the song (not its sound recording) would be treated as being indivisible. If this were the case, two options exist:

(a) The assignee as well as the lyricist and composer would share royalties equally. If there were three persons involved, presumably, they would each be entitled to 33.33% although this figure would vary depending on the number of lyricists and composers, and the shares of all of them – the assignee and the authors – would decrease with an increase in the number of people entitled to royalties.

(b) It is also possible that the provision would be interpreted to mean that the assignee would be entitled to 50% and the underlying authors to 50%, in which case: the assignee would be entitled to 50% while (assuming there was one lyricist and one composer), the lyricist and composer would each be entitled to 25%. The shares of the lyricist and composer would decrease if there was more than one lyricist and one composer.

Pertinently, though, the royalties payable would probably not include the royalties / revenues for the entire film in which the song is recorded or the sound recording of the song, both of which would be works separate and distinct from the underlying works.

Option 2:

It is possible that the rights within a work would be separated, and the revenue earned from the song would be treated as being divisible with regard to rights. If this were the case and the rights were considered individually, two options exist:

(a) For the music right: the assignee and the composer would each get 50% of what was earned from the music right, if there was one composer. If there were two composers, the assignee and the composers would each get 33%, with the shares of all of them decreasing with an increase in the number of people entitled to royalties.
Similar calculations would be made relating to the lyric rights, which would be valued separately.

(b) For the music right: the assignee and the composer would each get 50% of what was earned from the music right, if there was one composer. If there were two composers, the assignee would get 50% and each composer would each get 25%, with the shares of the composers alone decreasing with an increase in the number of persons entitled to royalties.
Similar calculations would be made relating to the lyric rights, which would be valued separately.

CONCLUSION

As such, although it is clear that the authors of underlying works in films and sound recordings, as well as performers, do have a continuing right to royalty, the mechanism through which this royalty would be payable and the amount of royalty that would be payable is debatable.

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