Vodafone ruling redials rights over ringtone royalties

When mobile networks and the entertainment industry intersect, a massive digital marketplace gets created. But a legal minefield also awaits. Each time a tune is streamed or downloaded as a ringtone, a chain of payments gets triggered. But who gets paid and how much? Does only the record label get the royalty? Or are the lyricists and composers also entitled to a share?

Authors’ royalties in sound recordings

The Division Bench of Calcutta High Court recently weighed in on this subject in a dispute pitting mobile telecom network Vodafone Idea against the Indian Performing Rights Society (IPRS) and the Saregama record label. The central question concerned authors’ rights to collect royalties in respect of the literary and musical works (underlying works) incorporated in a sound recording, when such a sound recording is commercially exploited.

The issues for consideration were:

1. 1. Do authors retain a statutory right to royalties even after assigning copyright in their underlying works?
   2. Is the IPRS empowered to collect royalties for underlying works incorporated in a sound recording, when such a sound recording is commercially exploited?
   3. Is a music label such as Saregama authorised to license underlying works that are in its sound recordings?
   4. Did Vodafone’s existing licences cover the commercial exploitation of underlying works?

Authors retain royalties after assignment

The court analysed the scheme of the Copyright Act, 1957 (the act) – in particular, provisos 3 and 4 to section 18(1), and sections 19(9) and 19(10) – concluding that author rights to royalties are not extinguished on assignment of copyright of the underlying works.

The court further reaffirmed that authors are entitled to receive royalties for the use of underlying works incorporated in sound recordings when such a sound recording is commercially exploited. This reinforces the position that authors have a continuing right to receive royalties despite having assigned copyright to producers or music labels.

Copyright societies administer authors’ royalties

Separately, the court recognised copyright societies as the principal entities entitled to administer royalty rights of authors of underlying works. According to the court, once a copyright society comes into existence, the rights of authors of underlying works vested with this society for the purposes of administration, unless an author exits the society.

The IPRS can therefore claim royalties in respect of underlying works, when a sound recording incorporating such works is commercially exploited.

Vodafone licences cannot bypass royalties

On scrutinising Vodafone’s licensing arrangements with Saregama, the court held that such agreements cannot bypass section 19(10) of the act to the extent that they deprive authors of their right to royalties in the underlying works.

In this regard, the court held that:

1. 1. Saregama lacks the legal standing to grant licences for underlying works incorporated in sound recordings for commercial exploitation; and
   2. Separate permission from the IPRS is required for any commercial exploitation of these underlying works.

Ultimately, the court deemed Vodafone’s existing licences legally insufficient.

Judgment strengthens authors’ royalty protections

The judgment effectively reinforces the protections granted to authors of underlying works by affirming their rights to royalties. The court’s view on royalties due to authors and separate permission from the IPRS is being warmly welcomed by the creator community.

This judgment marks a significant chapter in a longstanding judicial saga over such royalty rights of authors. The now-defunct Intellectual Property Appellate Board and Bombay High Court have previously tested these same questions, and similar issues are also pending before Delhi High Court.

With high stakes at play, it remains to be seen how courts across jurisdictions will ultimately reconcile statutory authors’ rights with the commercial realities of sound recordings.

Neel Mason is an of counsel, Ekta Sharma is a partner and Surabhi Katare is an associate at Obhan Mason