This article has been written by Rutuja Raghushe, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.

Introduction

Royalties are a form of security that is meant to ensure that others are not free to copy an author’s or an innovator’s ideas without their permission and payment. These cover a variety of things, including patents, copyrights and trademarks. And there are two elements when it comes to claims for copyright infringement: first, there should be a person or entity infringing an author or innovator’s copyright, and the second thing is that there should be damages resulting from their actions.

However, intellectual property owners are often reluctant to license or grant use rights to others. This is often done so that the licensee’s scope can be expanded into new markets, or so that another company can exploit and commercialize the previously owned rights. For third-party licences, the licensor, and also the creators of the intellectual property, must be covered, and a specific licensing agreement is needed to ensure financial compensation.

Licensees must establish a license fee that specifies the fees to be charged for the intellectual property rights. The majority of the time, royalty payments are made based on net or gross income. Intellectual property can also include various types of fixed fees.

Types of royalties

Royalty payments can be arranged in a number of ways, depending on the terms of the intellectual property licence agreement. Here are a few examples of the different possibilities:

Royalty percentages 

Most deals have a royalty rate based on a percentage of sales. An example of this rule is that if the royalty is 5% of net income, the licensee pays 5% of gross sales as compensation for utilizing the intellectual property of the inventor or copyright holder.

Fixed royalties

In order to be considered fair, licensors may opt to charge a fixed fee instead of a percentage of the profits derived from intellectual property instead of charging an entire royalty. Fixed fees allow the parties to know precisely how much they will be charged.

Variable or fixed rates

It is standard practice to provide a license at a variable fee for new intellectual property that hasn’t quite proven its worth in the market. This is going to lower the reward percentage, until those goals are reached. If a licensee meets a certain production or revenue goal, the rates will be adjusted accordingly. Variable rates are most often used in conjunction with production or revenue thresholds – for example, if a licensee reaches a certain amount of sales, they will be credited with a lower royalty rate.

Minimum royalty rates

Some copyright owners require licensees to consent to a minimum royalty fee. This ensures that the licensor receives a certain amount of money regardless of the royalty percentage or profits generated by the intellectual property.

Many license agreements specify whether royalties on intellectual property are charged weekly, quarterly, or annually. It is, however, entirely dependent on the requirements as a copyright owner and what the licensee is willing to consider. There is no one way to calculate royalty rates.

Moral rights of an author incapable of being assigned for royalties 

Copyright is the owner’s legal right to prevent anyone from producing copies of his or her work. The person who created the work is not always the copyright owner or claimant. But it is important to note that the copyright law of 1957 (“the Act”) is intended to protect the moral and economic rights of authorship and assignment rights, as well as the rights to use the work. The owner or claimant retains authorship, which must be maintained for the duration of the copyright. The Act was recently revised to make it illegal for the author to pass his moral rights.

As a sovereign entity to the Berne Convention, India has incorporated Article 6b is into Section 57 of the Copyright Act. This segment lists the author’s moral rights. It gives the author the right to assert authorship in the work even after the copyright has been assigned. It also states that the author has the right to royalties in the case of approved usage, as well as damages if any alteration, modification, or mutilation jeopardizes his work, regardless of whether the assignment is partial or complete. Furthermore, a copyright assignee does not assert any rights or immunities based on the contract that are inconsistent with the provisions of Section 57.

The plaintiff’s giant mural was removed from its intended location and relocated to a government-owned store. He saw this as slander of his artistic work and lodged a complaint with the Delhi High Court. A restraining order prohibits the defendants from damaging or altering the mural, and damages of fifty lakh rupees (Indian rupees) have been awarded to the artist. In this case, the court also determined that there are two types of moral rights: ‘rights to fair attribution,’ which deal with usage rights, and ‘integrity,’ which deals with who controls the work. This pressing need emerged as a result of the court’s belief that the destruction of any kind of work of art amounted to mutilation and Section 57 of the Act needed to be interpreted to include any kind of harm. 

When the artist produces a piece of art, several rights can be created. The first and most obvious right that comes to mind is the “Paternity Right” in the work, i.e. the right to have his name on the work. There can be no purity if there is no honesty. It may be a matter of opinion, but the treatment of a work that is derogatory to the author’s reputation or degrades the work as conceived by the author can be objected to by the author. This is the moral right to “integrity.”

As a result, an author’s moral rights are intrinsically linked to the work from the start, and therefore, moral rights must accompany the creation of the work from the outset regardless of any task, partial or complete. An author’s moral rights cannot be taken away or assigned in exchange for royalties, whether the copyright is active or expired.

Music Broadcast Limited and Ors. v. Tips Industries Ltd and Ors.

The amount of royalties owed to music labels by FM radio companies has long been a point of contention. As a result, the court resolved ten identical applications in a single order passed in this case. Furthermore, Section 31D of the Copyright Amendment Act of 2012 grants a statutory license to all broadcasting organizations that intend to communicate with the public through broadcasting, provided that these broadcasting organizations pay royalties to the owner of such rights in the manner and at the rates determined by the Appellate Board.

The legislature wished to adopt 31D not only for broadcasting organizations but also to guarantee public access to FM radio sound recordings without subjecting broadcasting companies to long-term negotiations with the creators of musical work.

The music industry claimed to be able to bargain royalty rates in a free market and that royalties should not be based on net publicity income. They argued that only because of a poor curation of content on broadcast, lack of understanding of customer desires and other such matters, advertising revenue could decrease. The needle per hour (NPH) or gross income form was instead suggested.

Radio firms, on the other hand, refused to pay additional royalties because of their participation in social welfare programmes. However, radio companies have been profit-driven since the privatization of radio stations. Prior to the 2012 amendments to the Copyright Act, 1957, the first owner of the copyright in the literary and musical works incorporated in the cinematograph film/sound recording would be the filmmaker when commissioning or recruiting the authors/composers. Previously, there was no legal provision for the payment of royalties for literary and artistic works.

The assignee, the author, and the music composer normally share the right to royalties; however, the court ruled that the individual utilizer is responsible for royalties because payment is linked to the use of the work. The broadcasting organizations decided to pay royalties under the heading of “sound recording,” making it the responsibility of the producers/music firms to share the proceeds with the writers and composers. The music corporations, on the other hand, said that like the broadcasters before them, the writers and composers were entitled to royalties under their own heading.

The radio broadcaster is the sole holder of the statutory license, according to Section 31D(1), and no one else is allowed to obtain it. As a result, the broadcaster is solely responsible for paying royalties to the works’ creators. In this way, broadcasters can use such work for commercial purposes, and no one else can pass or impose blame on them. As a result, the radio broadcaster is the only one responsible for paying the necessary royalties.

The IPAB then emphasized the importance of implementing this provision in accordance with appropriate procedures and taking into account the interests of the owner of the right to access music through radio broadcasting over the public interest. As a result, it would be counterproductive for the copyright owner to reflect the economic interests of music stations in deciding royalty rates under that clause, skewing the balance significantly in favour of radio stations, in violation of the letter and spirit of that provision. So, according to a more sophisticated interpretation of the rule, the method for calculating the royalty rate is Needle per hour (NPH).

References

1. Intellectual Property Royalties-Everything you need to know, Available at: Intellectual property royalties – everything you need to know | RoyaltyRange.
2. Intellectual Property Royalties-Everything you need to know, Available at: Intellectual property royalties – everything you need to know | RoyaltyRange.
3. Amar Sehgal v Union of India, 117 (2005) DLT 717.
4. Indian Copyright Orders and Judgments – 2020 | BananaIP Counsels

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