The Spotify-Warner dispute: Looking at statutory licensing for on-demand services

The dispute involves Spotify’s attempt to obtain a statutory license to stream Warner’s music.

The arrival of streaming platform Spotify in India has immediately captured the attention of the online content industry. This is firstly in terms of the competition it presents to established music streaming players, having acquired over 1 million users within a week of its launch. Secondly, this is in terms of the crucial legal dispute between Spotify and Warner/Chappell Music (MCM) that has accompanied Spotify’s launch, a dispute which involves Spotify’s attempt to obtain a statutory license to stream Warner’s music, after negotiations for a voluntary license failed.

 The Spotify-Warner dispute: Looking at statutory licensing for on-demand services

Spotify. Reuters

The dispute involves many pertinent questions of law, of which an important one is whether the rights of a copyright owner can be circumvented to obtain such a license under the law, to thereby allow the on-demand access of copyrighted content online. The question will impact not just Spotify but the online distribution of content in any form today, be it via music streaming services like Saavn or iTunes, a video streaming service like Netflix, or any others.

What does a statutory license allow?

To delve into the questions of law that arise, the first is with the statutory license being sought. This a license that is granted under Section 31D of the Indian Copyright Act, 1957, which allows a ‘broadcasting organization’ to ‘communicate’ an already published work to the public. For this, instead of obtaining a normal license from the copyright owner, the broadcasting organization is required to give a notice that it intends to broadcast the work, and must pay a royalty that is determined by the Appellate Board under the Act. The royalty is determined based on suggestions of the copyright owners backed with ‘adequate evidence’ as to the rates to be charged (Rule 31, The Copyright Rules, 2013). This may be an issue for copyright holders since such evidence would require a transparent disclosure of the royalties earned.

Right to ‘communicate’ vs Right to ‘reproduction’

The dispute in Spotify’s case is in relation to this right to ‘communicate’ the work. Warner, as per reports, is arguing that a statutory license grants only the right to communicate the work, and not the right to ‘reproduce’ the work, or make copies of it. One can consider the difference between watching a movie on a television set and purchasing a DVD with the movie from a store. This line, however, is not so clear-cut in the digital world, since every single form of communication will involve the transmission of data in some form or the other, even in a temporary form. Consider some forms of transmission below:

S.No. Communication Download (Reproduction) Interactive/ Non-interactive Examples
1 On-Demand Streaming without Download Yes, temporary download of data such as caching Interactive Watching a movie on Netflix
2 On-Demand Streaming with Download Yes, permanent/ long-term download of data to the device, access to which is encrypted and restricted to the app and the device Interactive Downloading a song to your device from iTunes
3 On-Demand Streaming from the Cloud Yes, temporary download of data such as caching Interactive Listening to a song from Spotify without download
4 Online Radio Yes, temporary download of data such as caching Non-Interactive Picking a radio station on Apple Radio and listening
5 Live Streaming Yes temporary download of data such as caching may involve permanent download depending on use Non-Interactive Watching content livestreamed on YouTube
6 Recommended Content Yes, either temporary or permanent based on the app Partially interactive Recommended or customized playlists
7 Local Download Yes, permanent/ long-term download of data to the device Interactive Downloading content onto your device

As can be seen, every form of this content distribution involves a download of data. A reading of Section 31D and the relevant rules demonstrate that the original intent of the lawmakers was to restrict the applicability of the section primarily to television or radio broadcasting. However, in the absence of a specific restriction of this nature, in 2016, the Department of Industrial Policy and Promotion issued an Office Memorandum clarified that even ‘internet broadcasters’ could obtain a statutory license. The Memorandum, however, did not define internet broadcasting or clarify the scope of what would be permissible.

Are permanent downloads permitted?

Since it is clear that internet broadcasting is permitted, and that any communication of content on the internet will involve the transmission of data, it can be assumed that the reproduction of data will be allowed via statutory licensing. The question then is to what extent- whether this is restricted to temporary download such as caching, or even of downloads of a long-term nature (downloads for offline viewing).

If restricted to temporary downloads, then, going by the table, on-demand streaming without download or from the cloud, online radio and livestreaming would be permitted. If permanent or long-term downloads are included, then any form of online streaming would be included.

Is interactive broadcasting permitted?

A second question is on whether the reference in relation to statutory licensing is to interactive or non-interactive broadcasting. The former is similar to broadcasting on a TV or radio, where the consumers of the content do not get to select the content that is aired, while the latter is similar to, say, viewing content on Netflix, where the consumer does make this choice. The former, arguably, draws a closer relationship with the original intentions of the lawmakers, since such non-interactive broadcasting would be similar to that done on TV or radio.

Going into the definitions under the law, ‘broadcasting’ is defined under Section 2(dd) of the Copyright Act as a ‘communication to the public’, either by means of wireless diffusion or by wire. ‘Communication to the public’ is defined under Section 2(ff) of the same law as making a work (say a musical work), available to be seen/ heard by the public, by any means of display or diffusion. Particularly, the section goes on to specify that such display or diffusion may be done simultaneously, or at places and times chosen individually. The wording of this section indicates that the broadcasting includes individual selection of consuming the content, thus indicating that interactive broadcasting is also included here.

Can interactive services be the subject of a statutory license?

To what extent such an argument is tenable in relation to statutory licensing will have to be seen. Importantly, this would allow just about any content that can be viewed online to be considered to be ‘broadcasting’ and to be the subject of statutory licensing. Reference may be made to the table above, which demonstrates that online content today is dominated by interactive services. Permitting licensing of this nature would thus allow almost any streaming service, say Netflix, to stream content online via a statutory license instead of obtaining a proper license from the copyright owner.

Such a practice may be harmful since thereby a copyright owner will lose the right to negotiate and set his terms of royalty. The royalty payable, as mentioned earlier, will be determined by the Appellate Board based on evidence as to rates that are provided by the copyright owner. As is argued here, such a system may work well as a protection against anti-competitive behaviour or against unreasonable behaviour on the part of the copyright owner. Section 31D, however, at present does not make any such pre-requisites of evidence of anti-competitive or unreasonable behaviour, but instead leaves this as an alternative form of licensing for a broadcaster.

What was the rationale behind Section 31D?

Looking into the law, a Madras High Court judgment in dealing with Section 31D pointed out that this section was introduced as a mechanism to deal with the public interest (of the public to consume content that has been published) vis-à-vis the private interest (of the copyright holders to their royalties).

Speaking to an industry expert on this issue, however, it was pointed out that the section was originally introduced with the aim of providing some impetus to the radio industry, which at the time (2012) was struggling, and was a public service. Today, as per this report, the radio industry stands at around Rs.3000-4000 crores, while the music industry stands at around Rs. 850 crores. The justification of continuing this support, possibly at the expense of the copyright holders, and in fact to extend it to a billion-dollar enterprise of the nature of Spotify (and the like), is a factor that needs to be considered.

How do international regulations fare?

The constitutionality of Section 31D, however, is an issue that has come up before Indian courts several times, and the section has been upheld. Specific issues such as whether Section 31D needs to be repurposed to deal with issues like anti-competitive behaviour, however, still need to be addressed.

Additionally, so far there hasn’t been a proper discussion of the specific issues pertaining to the digital age in Indian courts, as discussed here. These issues, however, have been dealt with to some extent in foreign jurisdictions, which, however, present contradictory positions.

In the US, for instance, a rather complicated stance is taken in relation to sound recordings under the Digital Performance Right in Sound Recordings Act, which was later modified by the Digital Millennium Copyright Act. These can be considered as a three-fold rule- where interactive services, including on-demand services and services created for the user (such as recommendations), require a license from the copyright owner; non-interactive subscription services could be accessed via a compulsory license; and, lastly, non-interactive, non-subscription services did not require a license.

In the EU, on the other hand, the EC Information Society Directive clarifies in Recital 25 in relation to the rights of a copyright owner, that this includes the right to make their works available via interactive on-demand transmissions. It further clarifies that this is characterized by the fact that the public can access the works from a place and at a time as individually chosen by them. Considering that the Indian definition of ‘communication to the public’ also allows an individual to choose a time and place, it is possible that such an interpretation be taken to allow statutory licensing for interactive services as well, as argued above. At the same time, since this interpretation is not specific to statutory licensing but to the owner’s rights, it is possible that the US interpretation be adopted to restrict such licensing to non-interactive services.

Present status of the Spotify-Warner dispute

The Spotify-Warner dispute thus throws up interesting questions of the law of copyright as applied to the digital age. Subject to the parties manage to settle their differences prior to the conclusion of the case, this is a case likely to have far-reaching implications for online content streaming.

At present, Spotify has issued a notice for the statutory license. Warner has applied for an injunction before the Bombay High Court seeking to restrain Spotify’s use of their works before the grant of any license, whether contractual or statutory. The Court directed Spotify on 26 February to refrain from pursuing its application for a statutory license for a period of one month and required it to deposit a sum of Rs 6.5 crores. Spotify is also required to keep records of any use made and revenues earned from Warner’s music. At the parties’ agreement, the Court did not specify the reasons for this arrangement. Thereafter the Court will continue hearing the case on whether Spotify has a statutory license on 25 March.

The author is a lawyer specializing in technology, privacy and cyber laws.

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