Regulation of Collective Management Organisations in Kenya: Understanding the Law as-is
By Caroline Wanjiru*
From our previous post, we have described the various Collective Management Organizations’ (CMO’s) in Kenya. Briefly, CMOs are not-for-profit membership entities authorized by Kenya Copyright Board (KECOBO) to carry out the business of copyright collection on behalf of their members. Their operations of the CMO’s are regulated by the Members, KECOBO and Law.
The Social Contract
The relationship between the copyright holders and the CMO’s is akin to the relationship embodied in the social contract in relation to the government and the citizenry. The proponents of the social contract theory argue that in the beginning, the people had unlimited rights and freedoms, a free political order or the state of nature. In this state, the people could exercise their freedoms and powers however they liked, including doing harm.
To avoid this, the people freely and voluntarily consented to surrender some of their powers to a third party, the government, which could exercise these powers on their behalf, for their benefit, and to regulate the human behavior. The legitimacy and authority of the government fully rested with these people. In exchange, the government was to ensure there is social order and protect the other rights the people retained. The government governed at the behest of the people who could regulate, change and check on exercises of powers through various avenues especially the elections.
CMO’s: A legal background
This is not so different from the CMO’s. MCSK, PRISK, and KAMP (“CMO’s”) are registered as companies limited by guarantee and licensed by KECOBO. They are voluntary membership entities. There’s an eligibility criterion for membership. Membership can also be terminated by the member on notice to the CMO. Upon admission, the members assign the rights to be managed by the CMO on their behalf. The CMO acts as the owner of these rights during enforcement. In exchange, the CMO undertakes to exercise and manage these rights in accordance with a set of laws, some of which we shall discuss below. As is the case in the government vs the people, the CMO’s existence, authority, and legitimacy fully rests with their members. It would be unconstitutional for a CMO to collect royalties for people who are not their members.
For purposes of corporate governance, this relationship is clearly set out in the incorporation documents including the Memorandum and Articles of Association. Part III of the Companies Act, 2015 (“Act”) refers to the AoA of a company as the Constitution. In the AoA, the members of the CMO’s stipulate how they want the CMO to exercise the powers they have assigned to them. For those who did not sign the AoA during incorporation, the application and admission to the CMO as members signifies their willingness and acceptance to be bound by the Articles.
As a body corporate, the CMO acts through its officers and the AoA specifically delegates the members’ powers to the specific officers of the entity. However, and at all times, the ultimate power of the company is exercised by the members through the general meetings (AGMs). The expression of this power is through voting in AGMs. The Members first delegate their powers to the board however constituted. The second delegation of power is done through the Board to the management. The main aim of the delegation of power is to always ensure that the entity is effectively managed and assist members to achieve their set objectives. Our focus is on MCSK.
MCSK is registered as a company limited by guarantee and in accordance with the provisions of the Companies Act. MSCK’s main objective is to exercise and enforce copyright and related powers on behalf of its members. Under Article 4, MCSK’s membership is voluntary, upon application and is made up of authors, composers, publishers, and owners of musical works or their legal representatives. The governance structure is laid down in Articles 12 (annual general meeting), 32 (governing council) and 42 (general manager). Characteristically, Sections 114 and 132 of the Companies’ Act empowers members or their representatives in a company to call for a meeting through the directors. The right to require directors to call for a meeting includes the right to set the agenda for such a meeting and put it to a vote. This provides an opportunity for the members to keep the society in check and to ensure they act in their best interests.
Section 46 (9) of the Copyright Act, allows KECOBO to deregister a CMO for not acting in accordance with the best interests of its members. Arguably, it would not be in the best interests of members to deregister a CMO as this would defeat the original reasons as to why it was set up. The law is also silent as to what happens to the members of a CMO once it is deregistered. Section 47 requires the CMOs to submit to KECOBO a copy of their operations report and audited financial report for every financial year. These two provisions provide KECOBO with a rightful opportunity to regulate the conduct of CMO’s preferably through active engagement.
In exercising these powers, KECOBO in a Gazette Notice No. 5093, KECOBO deregistered MCSK for mismanagement of funds but reissued the certificate thereafter. Currently, MCSK has a certificate valid until December 2019. The circumstances’ of the issuance of this certificate has been the subject of outcry from Kenyan artistes here and here. It is alleged that in 2017 and 2018, the CMO was in operation managing copyright without a license from KECOBO. KECOBO distribution rules require CMO’s distribute royalties to the members based on 70:30 rule meaning 70% of the royalties collected goes to the members. Ironically, of the Kes 379M reported as income for the year 2017, MCSK had a budget expense of Kes262M. The royalties to be distributed was Kes. 64M. It is not clear what steps KECOBO took to address this in its capacity as a regulator.
The future of CMO’s
The question now remains, what happens to the members of CMOs which are seemingly not serving their best interests? Do members have any recourse? Do they have to implore the President to issue a decree to digitize royalty collection and distribution? From a corporate governance perspective, active participation of the members in the management of the CMO’s is paramount in the effective management of royalties. Some other drastic measures include exercising the right of terminating the individual membership and/or dissolution as envisioned in Objective 7 and Article 77 of the MemArts. Although it is virtually impossible for copyright owners to collect royalties for their works from the individual copyright users, this remains an option. The proposed Copyright Amendment Bill has proposed various amendments to the Act which will see KECOBO exercise more powers in relation to the management of CMO’s.
In our next post, we analyze the proposed amendments to the Act evaluating they mean especially for the copyright holders. We shall compare this with the operations of CMOs in other countries we consider to be successful with the aim of providing benchmarking options members, CMOs and the regulator for better collective management of copyright in Kenya.
*Caroline is a Research Fellow at CIPIT.