Royalty distribution in Nigeria: Must collective management organisations distribute royalties only to members whose works were used?

Given the provisions of Regulation 15 of the CMO Regulations, can a collecting society distribute any portion of royalties received to members whose works were not used in a given year? 

This is essentially the question that the Federal High Court of Nigeria was asked in the case of Green Light Music Publishing Limited and Others v Copyright Society of Nigeria Ltd/Gte (Suit Nos. FHC/L/CS/1418/2019) decided late last year.

Background
Green Light Music Publishing Ltd, Chocolate City Music Ltd and Premier Music Publishing Company Ltd (the plaintiffs) filed an Originating Summons at the Federal High Court in which it requested the court to determine this sole question: “whether, by virtue of the provisions of Regulations 15(1) and (2) of the Copyright (Collective Management Organisation) Regulations 2007, the Defendant’s manner of distribution, known as ‘General Distribution’ or however so called, which does not reflect the usage of the works covered by the Defendant’s repertoire and/or is not based on information furnished by its users, is illegal?”. [COSON has a practice known as "general distribution" where it sets aside part of the royalties it receives and divides same into a flat sum distributed to all members irrespective of whether they have earned royalties in a given year.]

The plaintiffs claimed that the defendant, Collecting Society of Nigeria’s (COSON) practice of distributing a fixed amount to each member as royalties irrespective of whether such members’ works earned any royalties was illegal given the provisions of both COSON’s memorandum and articles of association and Regulation 15 of the Copyright (Collective Management Organisation) Regulations 2007 (CMO Regulations). [Regulation 15 of the CMO Regulations requires every CMO to “distribute royalties collected to its members in a manner to reflect as nearly as possible the actual usage of works covered by its repertoire”.]

everyone gets a share...

The decision

In his judgment, Justice Oguntoyinbo noted that the plaintiffs in their supporting affidavit averred that the “general distribution” practice was contrary to the provisions of COSON’s memorandum and articles of association. The court further noted that the defendant did not controvert this averment in its counter-affidavit. Pages 6-7 of the judgment.

The Court held that companies must adhere to the provisions of the memorandum and articles of association, as altered from time to time as these documents constitute a contract between the company and its members and officers and between the members and officers themselves. Accordingly, given the uncontroverted evidence that “general distribution” was contrary to the defendant’s memorandum and articles of association, the court held that the “general distribution” practice was illegal and made an order prohibiting COSON from engaging in “general distribution” or any practice that does not reflect the information furnished by users. Pages 6-9 of the judgment

Comments

A distinction must be made between prohibiting “general distribution” as contrary to a CMO’s memorandum and articles of association and, one prohibiting “general distribution” as illegal by virtue of Regulation 15 of the CMO Regulations. Regrettably, the learned trial judge did not pronounce on how Regulation 15 should be applied but relied on an interpretation of the company’s (i.e. COSON) memorandum and articles of association. It is thus safe to assume that the court’s decision was with respect to the plaintiffs’ case rather than an interpretation of Regulation 15 specifically. In this Kat’s opinion, a CMO cannot distribute royalties to reflect usage with precision. It can only ensure that royalty distribution reflects use “as nearly as possible” [per Regulation 15(1) of the CMO Regulations]. This is because deductions may be made from royalties and applied to other purposes outside direct distribution to members. That some deductions are applied to other purposes other than distribution to members, whose works were used in a given year, may be gleaned from Regulation 10 of the CMO Regulations. Regulation 10 permits CMOs to “withhold from the amount collected or received by it such deductions necessary to cover any expenditure incurred in the fulfillment of its functions” subject to a maximum limit of “30% of the total royalties and fees collected during the year in which the deductions are made”. 

Perhaps, the problem with “general distribution” was that it was still referred to as “royalties” distributed directly to members alongside “specific distribution”. [Apart from “general distribution”, COSON makes “special distribution” to members whose works were used in a given year.] But, that should not mean that a CMO cannot apply certain portions of royalties received towards the welfare of its members.

It would have been helpful if the court explicitly interpreted Regulation 15 of the CMO Regulations vis-à-vis the rationale for the practice referred to as “general distribution”. That opportunity having been missed, it is hoped that in the meantime, the Nigerian Copyright Commission as the regulatory agency for the copyright sector can issue some directives to clarify things. CMOs should be able to, with its members’ approval, deduct a percentage of royalties received to cater for the welfare of its members as well as to other socio-cultural functions.