England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
The Hon. Mr Justice Vos
[2012] EWHC 3010 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/10/2013

Lord Justice Moses:

1. Integral to Bollywood films are the songs and dances. The songs comment on the narrative, express a character's sentiments and afford an opportunity for the film to display extravagant choreography, costume, set design and cinematography. Salim and Suleiman Merchant are composers of renown, frequently commissioned to compose the songs on which so many Bollywood films depend for their success. Soundtracks have been commissioned from Salim Merchant since 1996 and Suleiman since 1997.
2. On 9 June 2004 these composers entered into written agreements with the respondent, the Performing Right Society Limited (the PRS), a music rights collecting society, which has, from 1914, administered within the United Kingdom and other territories certain rights which include the right to broadcast copyright musical works on behalf of writers and publishers of copyright music and associated lyrics. The PRS licenses those who use the works of its members and distributes royalties which it obtains, on behalf of its members, from the licensees.
3. By Clause 2(a) of the agreement Salim and Suleiman Merchant agreed to transfer to the PRS:

"absolutely for all parts of the world the rights which belong to you on the date of this Agreement or which you may acquire or own whilst you remain our member".

I have underlined the words which are central to this appeal.

4. Just over four years later, on 15 September 2008, the composers were commissioned by the producers, Dharma Productions Private Limited, to write music for the film Kurbaan. Under that commissioning agreement they were engaged as "Music Directors" to create, conduct, perform and record the music for the film (Clause 1 Engagement). The agreement continues:

"2. COPYRIGHT

(a) The Music Directors hereby confirm and agree that the entire copyright (if any) or any performer's rights, if any, or any other rights arising from the Services or the product of the Services of the Music Directors, including without limitation the Music shall vest with the Producer as the first owner of the same pursuant to this contract of service executed. This shall be applicable to all present and future work arising out of the Services. This right shall be exercised for the whole period of the right and in all territories of the world;

(b) The Music Directors hereby expressly consent to the incorporation of the Music and the performance of the Music Directors, if any, arising consequent to the rendering of the Services in the Film. Consequent to the same the Music Directors confirm that the Music Directors do not have and shall not exercise any performer's rights under the provisions of the Copyright Act 1957 ('the Act');

(c) Without prejudice to the aforesaid, in the event of any copyrights or any other rights, including performer's rights being vested by law in the Music Directors, in respect of the Music, the Music Directors hereby assign to the Producer without any limitation, reservation or condition the entire copyright and performer's rights and all other right, title or interest of whatsoever nature ... whether vested, contingent or future in or to the product, results or proceeds ... of the Services ... whether now known, or in the future created to which the Music Directors are now or may at any time after the date of this Agreement be entitled by virtue of or pursuant to any of the laws in force in any part of the world to hold to the Producer, its successors, assignees, and licensees absolutely for the whole period of such rights for the time being capable of being assigned..."

5. By a chain of licensing agreements, which are not material, a satellite television broadcaster, B4U, the appellant, which specialises in music videos from Bollywood films, and in broadcasting the films themselves, acquired video rights to broadcast the song Shukran Allah from the music in the film Kurbaan. On 7 April 2010 B4U broadcast that song and PRS claimed for infringement of what it contended was its copyright. Vos J ([2012] EWHC 3010 (Ch)) gave summary judgment under Part 24 of the CPR on the basis that B4U had no real prospect of successfully defending the claim in relation to the song.
6. When the composers entered into the agreement with PRS and the agreement with Dharma, the song had not yet been composed. Before this court, the parties accepted that both the agreements, therefore, took effect as equitable assignments of a future copyright. If the song, Shukran Allah, came within the scope of the equitable assignment to PRS, then, under the rules of priority in relation to equitable assignments, PRS is owner of the copyright. Those rules dictate that the first assignee in time, in casu PRS, becomes the owner.
7. But B4U contends that Dharma is owner of the relevant copyright to that song because the rights to the song never came within the class of rights assigned to PRS in June 2004. The reason why the copyright in the song fell outwith the class of rights assigned to PRS is, so B4U contends, because the composers never owned the rights to the song. As soon as it was composed, copyright in the song was owned by Dharma by virtue of section 91(1) of the Copyright, Designs and Patents Act 1988. Although resolution of the appeal turns on the proper construction of the agreement with PRS, in the light of this argument, it is necessary to consider the relevant provisions of the 1988 Act.
8. Section 91(1) provides:

"(1) Where by an agreement made in relation to future copyright, and signed by or on behalf of the prospective owner of the copyright, the prospective owner purports to assign the future copyright (wholly or partially) to another person, then if, on the copyright coming into existence, the assignee or another person claiming under him would be entitled as against all other persons to require the copyright to be vested in him, the copyright shall vest in the assignee or his successor in title by virtue of this subsection.

(2) In this Part –

'future copyright' means copyright which will or may come into existence in respect of a future work or class of works or on the occurrence of a future event, and

'prospective owner' shall be construed accordingly, and includes a person who is prospectively entitled to copyright by virtue of such an agreement as is mentioned in subsection (1) ..."

9. The effect of section 91 is best understood in the context of the law as it was before the introduction of its predecessor, section 37 of the Copyright Act 1956. At common law a man cannot give to another that which he does not own or does not yet possess. Thus, absent statute, a work must be in existence before ownership in the rights in the work can be assigned at law. But although future property, or an expectancy, cannot be assigned at law, equity would decree specific performance of the contract, provided it was for value and sufficiently specific (Maitland on Equity, 2^nd ed. 1936, p.150, Kitto, Equity Doctrines and Remedies Butterworths Aus. 2002).
10. Accordingly, where an author, or composer, assigned the copyright in works which he had not yet created, the assignment took effect only in equity as an agreement to assign future copyright in those works, should they be created. Once the work was created, the legal title would have to be dealt with by a separate assignment.
11. PRS v London Theatre of Varieties [1924] AC 1, 13-14 illustrates a particular problem which flowed from the fact that an assignment of future copyright had no effect in law. PRS failed to obtain a perpetual injunction against music hall proprietors to prevent unlicensed public performances of 'the Devonshire Wedding' and 'Love in Lilac Time' because they did not own the legal right to the copyright and had not joined the legal owners. Section 37 of the 1956 Act, now section 91, remedies that difficulty and avoids the need to join those who would have remained legal owners but for the operation of that section. (Chaplin v Leslie Frewin (Publishers) Ltd [1966] 1 Ch 71, 96-96 (cited by Vos J [33]). Section 91, like its predecessor, vests legal title in the assignee as soon as that work is created; there is now no need for a separate assignment of legal ownership (Copinger & Skone James Copyright (16^th Ed. 2011 5-108, p.304)).
12. As the judge noted, [37], the reference in section 91 to "entitled as against all other persons" is an acknowledgement of the rule in equity that the first equitable assignee would be entitled to specific performance in priority to others to whom the prospective owner purported to make a later assignment of the future copyright. (Copinger 5-110 (e) p.305).
13. Accordingly, the only question which calls for resolution is whether the song Shukran Allah comes within the scope of the assignment to PRS on 9 June 2004. If it does, it is agreed that that assignment, as the first in time, takes priority over the purported assignment to Dharma.
14. The relative clause in 2 (a), describing the rights assigned to PRS, is designed to include a category of future rights, namely, those which the composer may own. The category of future rights assigned does not contain any requirement that, once the work is created, the rights must be owned by the composer. It does no more than refer to rights capable of being owned by the composer.
15. The category of rights assigned on 9 June 2004 must be identified on that date, the date when the assignment was made. Of course, the question whether rights in a particular work had been assigned to PRS on 9 June 2004 only arises when the work is created. But whether the rights in the works had been assigned in equity earlier is not answered by asking who owned the rights once the work was created. That is irrelevant. The question posed by the agreement with PRS is not whether the composers became owners but whether, at the time the agreement was made, they could have done so. The assignment does not transfer rights of which the composers subsequently became owners, it transfers rights which the composers may own.
16. As at 9 June 2004 it is beyond argument that the composers' rights in music they were yet to compose might be owned by them. In every Copyright Act since 1911, in general, the author has always been first owner of the copyright (s.5(1) of the 1911 Act, s.4(1) of the 1956 Act).
17. Now, their successors, in Sections 9 and 11 of the 1988 Act provide:

"9(1) In this Part 'author', in relation to a work, means the person who creates it. ..."

"11(1) The author of a work is the first owner of any copyright in it, subject to the following provisions.

(2) Where a literary, dramatic, musical or artistic work ... is made by an employee in the course of his employment, his employer is the first owner of any copyright in the work subject to any agreement to the contrary.

(3) This section does not apply to Crown copyright or Parliamentary copyright (see sections 163 and 165) or to copyright which subsists by virtue of section 168 (copyright of certain international organisations)."

There is no suggestion in this appeal that the exceptions to the general rule applied.

18. Mr Mellor QC contended that the rights in the song were never owned by the composers and, accordingly, fell outwith the scope of the assignment to PRS. The question whether the rights fell within the category of rights assigned to PRS can only be asked, he submitted, and answered at the moment it is created. At that moment, by the operation of section 91(1), ownership of the relevant copyright was transferred to Dharma and never came to the composers. From that moment Dharma became, by virtue of the Commissioning Agreement dated 15 September 2008, owners of the copyright.
19. He fortified that submission by pointing out that neither legal nor equitable title to the work came into existence until the work was created. That is true. Theatre of Varieties (q.v.supra) teaches that the equitable title only passed to the assignees once the songs were composed in 1919 (pp.13 and 17).
20. Vos J took the view that composers did become owners because, by virtue of sections 9 and 11 of the 1988 Act, they became first owners when the song was written. Section 91 operated to transfer the copyright from the first owners to the first assignee in time, PRS [54], [56] and [66].
21. The debate as to whether the composers ever did own the copyright focussed on the relationship between section 11 and section 91 and whether it was possible to conceive of the composers' ownership in a scintilla temporis.
22. In my view, it is unnecessary to be concerned as to whether the composers ever became owners of the copyright, even for a scintilla temporis. As I have stressed, the scope of the rights assigned does not depend on whether the composers became owners but on whether they might have done.
23. In any event, section 91 is concerned with a 'prospective' owner, someone who is not owner but may become owner by virtue of section 11. There is no need whatever to posit an owner for the purposes of section 91 which is only concerned with prospective owners. It is, of course, strange to conceive of an assignor of a copyright who never became owner. It was, no doubt, for that reason that the judge accepted that the composers did become owners. But it must be recalled that the very concept of copyright, its ownership and its assignment is entirely statutory, by virtue of section 171(2) (save for those rights such as the rights of the Crown and Parliament preserved under section 171(1)).
24. I am, for the purposes of resolving the correct construction of the assignment to PRS, content to accept Mr Mellor's submission that the effect of section 91(1) is to vest both legal and equitable title to the rights in the work, on its creation, in the first assignees in time. As Copinger, in its discussion on works of employees, says:

"…it will often be a term of the contract of the author's engagement that the "employer" should own the copyright….

(a) If the contract amounts to a valid assignment of future copyright, the copyright will vest in the employer as soon as it comes into existence." (5-10, p.261)

25. But on my construction of the category of future rights assigned on 9 June 2004 that does not avail the appellant. If section 91(1) operated to vest those rights immediately in the first assignee in time it vested them in PRS; they were rights which, as at the date of the assignment, the composers may have owned.
26. This conclusion has the merit that it is consistent with the nature and effect of an equitable assignment of a future copyright. In re Lind [1915] 2 Ch 345 scotched any idea that an equitable assignment gave rise only to contractual obligations, released on the assignor's discharge in bankruptcy. It creates a higher right than the right to specific performance [365], [366]. It:

"creates an immediate charge upon the property coming into existence, independently of the contract to execute some further charge and cannot be said to rest in contract alone" [358].

Accordingly, the assignment of future copyright in Cuban music effectively transferred equitable title, despite the Castro regime's decree which abrogated the contracts. At the time of the decree, some of the copyrights had not yet come into existence (the music had been composed before the decree took effect, but no English copyright in that music existed at the time) (Peer International Corporation v Thermidor Music Publishers [2004] Ch 212). Vos J relies on this case for the proposition that the property right created by the equitable assignment survived the abrogation of the contracts (see [36], where he cites 18 paragraphs of the judgment of Neuberger J).

27. It is, in my view, inconsistent with the concept of a higher right created by an equitable assignment, independent of the contract, to suggest that a reasonable person would have understood the parties to have intended only to transfer rights in works of which they became owner once the works had been composed. To do so would turn the priority rules in relation to equitable assignments topsy-turvy; it permits the property rights created by the equitable assignment to be undermined by a subsequent equitable assignment.
28. Moreover, the problem with Mr Mellor's argument is that it proves too much. If he is right as to the meaning of clause 2(a) then the composers could never have become owners and PRS could never have become assignees, even if the composers had never entered into any other agreement to transfer rights in the works. He was compelled to accept that clause 2(a) had to be read, "subject to this agreement", to avoid so absurd a result.
29. The conclusion I have reached gives full effect to the words of the PRS agreement, without addition or substitution. At the time of that agreement the composers could have become owners of the song. As prospective owners, their assignment took effect under section 91 once the song had been composed.
30. Whilst there was some debate as to the commercial effect of this reading on the composers' ability to take commissions, there was no sufficient evidence as to this and nothing on which to base any alternative construction. I would dismiss the appeal.

Lord Justice Kitchin:

31. I agree. This appeal concerns the scope of the assignment of future copyrights contained in clause 2(a) of the PRS member agreement. It says:

"you transfer to us absolutely for all parts of the world the rights which belong to you at the date of this Agreement or which you may acquire or own whilst you remain our member."

32. The issue between the parties is a very narrow one: if, after a musician has become a member of the PRS and entered into a member agreement, he enters into a commissioning agreement with a client to write a song on terms that the client will own the copyright, does the copyright belong to the PRS or to the client?
33. Mr James Mellor QC argued that the copyright belongs to the client. He submitted that in such a case the copyright vests in the client immediately the song is written and so it is never a copyright which the musician "may acquire or own" as called for by clause 2(a). Moreover, he continued, the reason for this is plain. Members such as Salim and Suleiman Merchant ("the composers") are professional musicians who make their living writing songs. From time to time they are commissioned to write songs on terms that the client will own the copyright, just as the composers were commissioned by the production company Dharma to write the song Shukran Allah for the musical film Kurbaan. The interpretation of the clause contended for by the PRS would, Mr Mellor submitted, prevent musicians from undertaking such commissions and earning a living in this way, and would flout business common sense.
34. Mr Robert Howe QC responded that the copyright clearly belongs to the PRS. The member agreement operates as a present assignment of future rights and takes priority over the commissioning agreement because it is first in time.
35. At the outset I would emphasise some basic propositions. Subject to certain specified exceptions, the author of a musical work is the first owner of the copyright in it: s.11 of the Copyright Designs and Patents Act 1988. The author of a work may assign that copyright either wholly or partially, but any such assignment must be in writing and signed by or on his behalf: s.90 of the 1988 Act.
36. It has, however, long been established that a present assignment of future property is effective to vest equitable title in the assignee as soon as the work comes into existence: see, for example, Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1. Moreover, such an assignment creates an equitable charge which is enforceable as against the property to be assigned quite independent of the personal obligation of the assignor arising out of the imported covenant to assign: In Re Lind (Industrials Finance Syndicate Ltd v Lind) [1915] 2 Ch 345.
37. These general rules have been developed in relation to copyright, first by s.37 of the Copyright Act 1956 and now by s.91 of the 1988 Act to allow parties to enter into an assignment which has the effect of vesting both legal and equitable title to the copyright in a future work in the assignee.
38. There are four aspects of s.91 which have a bearing on the issue before us. First, the assignment must be in writing and signed by or on behalf of the prospective owner.
39. Second, the assignment operates to vest the legal and equitable title to the copyright in the assignee as soon as the copyright comes into existence. The copyright does not pass the through the assignor.
40. Third, the expression "prospective owner" is to be construed accordingly, and includes an assignee who has himself purported to enter into a further assignment of the future copyright.
41. Fourth, the section will only operate if the assignee would be entitled as against all other persons to require the copyright to be vested in him. This reflects the equitable principles which provide the foundation for the provision and, in particular, the basic rule that the person whose equity attached to the property first will be entitled to priority.
42. Turning now to clause 2(a) of the member agreement, the relevant principles which must guide the court in determining its proper interpretation are not in dispute. As Lord Clarke explained in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [14], the aim is to determine what the parties meant by the language used, and this involves ascertaining what a reasonable person would have understood the parties to have meant. The relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
43. What then is the relevant background knowledge? The PRS is a non-profit making collecting society and its members are authors, musicians and publishers. The members, of whom there are over 70,000, assign to it the rights which it administers on their behalf for licensing purposes. Those rights include the right to perform a work in public and the right to communicate it to the public. A member may choose only to assign to the PRS particular classes of right or the rights in particular territories. But a member may not assign the rights only in respect of particular works. A member may resign his membership and, if he does so, the rights he has assigned will revert to him.
44. Against this background, I consider the meaning of clause 2(a) of the member agreement is tolerably clear. At least so far as UK copyrights in songs are concerned, it is intended to operate as an immediate assignment of all the future copyrights which the member may own under s.11 of the 1988 Act. Importantly, it is intended to regulate the position and have effect as from its date with the consequence that any later assignment by a member of any future copyright must take effect subject to it. Put another way, the copyright in a song written by a member pursuant to a later commissioning agreement is a right which the member "may acquire or own" within the meaning of clause 2(a).
45. I do not accept that this interpretation would flout business common sense as Mr Mellor submitted. There was no relevant evidence this would cause members any real difficulty or inhibit their ability to earn a living. To the contrary, the PRS protects the rights in around 10 million songs for its members and its agreements have included a clause in substantially the same terms as clause 2(a) for very many years. Further, and as I have said, the PRS cannot allow its members to assign to it the rights in respect of only certain works. Yet the interpretation contended for by Mr Mellor would allow those members to do precisely that.
46. It follows that the copyright in the song Shukran Allah did fall within the scope of the member agreement entered into by the composers. It also follows that on the copyright coming into existence the PRS was entitled as against all other persons to require that copyright to be vested in it, and so the copyright did vest in it by operation of s.91 of the 1988 Act.
47. For all these reasons and those given by Moses LJ, I too would dismiss this appeal.

Lord Justice Underhill:

48. I agree with both judgments.