State Intervention on the Collective Management Organisations (CMO's) in Kenya: A Commentary on the Copyright Amendment Bill, 2018
By Caroline Wanjiru.
In our previous post, we addressed the law as is on Collective Management Organisations (CMO’s). Now we’ll analyze the proposed amendments to the Copyright Act and what they mean to the copyright holders and users in Kenya.
The Copyright Amendment Bill (‘Bill’)
This analysis will focus on proposed sections 46 A (10) (11) (12) B-G and 49 of the Bill.
Section 46 (10) requires KECOBO to notify a CMO and its members before it is deregistered. The members shall be free to make representations to KECOBO for or against deregistration. The Section, however, fails to address the lacuna that is created by deregistration of a CMO. What happens to the member’s benefits during the period of deregistration? Who shall manage rights previously assigned to the deregistered CMO? This is important as subsection 12 criminalizes the collection of royalties without KECOBO’s authority. Deregistration can be on account of the CMO materially prejudicing the interests of the members. KECOBO may either deregister the CMO or sanction its management and Board to explain the disputed matters.
Section 46(B) sets out the qualifications and the term of directors of a CMO. A director shall be required to have post-secondary education qualifications before being elected into office. This effectively locks out anyone who may have not reached this level for whatever reason. A director will serve for a term of 3 years and is eligible for re-election once. The Chief Executive Officer (CEO) shall serve for a term of 4 years and can be reappointed subject to evaluation by the directors. The Members shall elect the directors from their membership.
Section 46(C) defines the roles and types of CMOs to be licensed in Kenya. The objectives of these CMOs are the collection, management, distribution of royalties and other remuneration to their members. However, the collection of monies by CMOs will be done through the Kenya Revenue Authority (KRA) or any other Attorney General designated body. Notably, this will require amendment of the KRA enabling laws allowing KRA to collect these monies and directing how it will be done.
Section 46D requires the CMOs to submit information to KECOBO annually on their collection and distribution of royalties. KECOBO shall then gazette this information. The Kenya Gazette is the official publication of the government of Kenya published by the Government Printer. The intention of gazettement of this information which is authored and controlled by the CMO’s is not clear.
Section 46E empowers the Executive Director (ED) of KECOBO to authorize any person to inspect a CMO’s books of accounts. The purpose of such inspection would be to uncover a breach of requirements of the Act; irregular conduct of business; mismanagement and anything that may warrant a forensic audit. KECOBO can do this on its own motion or if at least 45% of members of a CMO petition for the same. The findings of such inspection can either lead to deregistration or sanctions to comply. The ‘offenses’ under this section include:
- Failure by the CMO to account for monies to at least 25% of their members.
- Failure by the CMO to offer an account of the exploitation of the works assigned/licensed to them.
- Acting beyond powers assigned to them
- Alteration of Memorandum to exclude a section of its members from participating in its activities.
- Failure to comply with KECOBO’s requests to comply.
- Failure to adhere to the set administrative budgets without reasonable cause.
The associated sanctions  to the above ‘offenses’ include KECOBO’s power to:
- Recommend removal of officers and employees of a CMO
- Issue directions to be followed
- Require the reconstitution of the board of directors
- Appoint a Chair to guide in the implementation of corrective actions they will have issued
- Issue orders placing a CMO under statutory management
- Revoke a license to a CMO
- Order the convening of a special annual general meeting by a CMO
- Order a CMO to act to rectify the deficiency
- Issue administrative directives as may be necessary.
It is worthwhile to note that Bill still envisions CMO’s registration under the Companies Act, 2015.
Section 49 of the Bill empowers the Cabinet Secretary under which KECOBO operates, to make rules and regulations on:
- Audit of the CMO’s
- Annual general meetings and special general meetings for CMO’s
- Registration of CMO’s for the representation of people with disabilities
- Making complaints to KECOBO
- Ratios of distributable income to administrative costs and deductions applicable to CMO’s
- Approval of distribution rules
- Approval of cash reserves for the CMO’s
- Approval of membership to a CMO
- Identification of works; monitoring payment; collection and distribution of royalties by the CMO’s
People obey the law for various reasons, including the fear of punishment or threat of negative consequences; the because it is what most people want to do; because it is a requirement of their morals or conscience; because it is the right thing to do and so on. The Bill proposes criminal liability or use of threat of limitation of liberties as a reason for the CMOs to comply. Section 46 (12). It is also an offense to willfully fail to produce books of accounts for inspection ordered by the ED.
Effect of the Bill
The Bill comes against a backdrop of complaints from artists on the failure by the CMOs to either remit royalties made to them or remitting extremely small amounts. The desire to have State (third party) intervention in the management of CMOs to bring some sanity is understandable. However, the level of intervention proposed under the Bill is a potent State takeover of the management of CMOs in Kenya. This would allow the State to administratively manage, control and regulate CMO’s. This has serious challenges as the regulator will become the manager to be regulated by itself.
Hypothetical instances that would happen are; what happens should the Chair appointed by ED under section 46F fail to produce books of account during their tenure? Can the ED again proceed an appoint any person under section 46F? Can members lodge a complaint to KECOBO? What would be the level of independence of these procedures? Would they be for the best interests of the members or the regulator-manager? Can the members be logically expected to proceed to the Tribunal in such a scenario? Who will be the regulator when a CMO is under KECOBO’s management? in such cases, KECOBO’s independence as a regulator would be greatly undermined. This would also be an open invitation to treat it as part of the CMO or vice versa.
This legislation as is, puts CMOs, social not for profit organizations with a specific mandate, on the same pedestal as State Corporations exercising State power and serving a public purpose. The CMO’s, as private member entities, should be left to manage and control their internal matters. The State should regulate their conduct of business at an arm’s length and avoid interfering with the management of the CMO’s. Should it be warranted, the State can embark on capacity creation for its audience to ensure that there is compliance.
State Intervention or Take Over?
In addition to the above Stately legislative interventions, President Uhuru Kenyatta in a speech to the mourners of the Kikuyu musician John De’Mathew on 24th August 2019 made several presidential decrees regarding the music industry. The President instructed Director of Criminal Investigations (DCI) and Ethics and Anti-Corruption Commission (EACC) to initiate investigations on those in positions of power in organizations in charge of the collection and releasing of royalties to musicians. He also directed the ICT Ministry through the Communications Authority (CA) not to renew broadcasting licenses before payments are paid to the copyright holders.
These are responses by the inefficiencies of the management, especially in the collection and the distribution of royalties by CMOs in Kenya. At all material times, CMO’s are full members managed entities. What ails the CMO’s is their management. Is the solution State intervention or take over in management?
The American Society of Composers, Authors and Publishers (ASCAP) was established in 1914 and has continued to be controlled by its members through its board elected by the members. It has more than 720,000 members and in 2018 it had revenue of $1.2Billion out of which it distributed $1.1Billion. This shows that the problem is not the control but management.
In China, CMOs have had State representation since their inception. As a result, they have become government representatives in the control, supervision, and restriction of their members. These controls result in minimal pursuit of members interests and instead, the State interests take center stage.
Copyright is a private right. It is granted by the State in exchange for public disclosure with the owner obtaining a limited monopoly over the subject matter. As a private right, therefore, the onus is always on the owner to seek protection and effective management either individually or collectively. The State, in turn, provides protection through the registration system and rights enforcement mechanism through the judicial system. This is a function of the separation of power which ensures that State power is not concentrated in one part and that there are checks and balances to prevent abuses.
CMO’s should be independent entities whose function is the social organization of its members focussing on the management of their rights including the issuance of licenses for its members’ rights; receiving payments on behalf of their members and generally acting on behalf of its members. The core function of a CMO is the collective management of copyright for the benefit of its members. The courts have severally upheld the importance if CMOs (here and here) in the collective management of copyright. They are invaluable in the effective management of copyright in Kenya. However, copyright remains private right whose first custodian is the owner. As such, therefore, the copyright owners who come together to form CMO’s, must not and should not abdicate this primary duty to the State. They should courageously employ the various self-regulation mechanisms provided under the law to maintain control and for effective management of the CMO’s as entities. The State should also maintain an arms-length dealing with the CMOs as their regulator and reject any invitations by the CMO’s to enter the administration and management arena. This will to ensure the continuity of independence of the ‘copyright industry’ in the country with the State as just arbiter.
 Section 46A (11) of the Bill
 Section 28 and 30 are amended by the new section 30B which provides that the collection of royalties will be through KRA or any other body designated by the AG on behalf of the CMO’s. The CMO’s are to make claims to KRA for the monies collected.
 This means that 25% of members would have to lobby a further 20% membership for them petition the inspection by KECOBO
 Section 46F of the Bill
 The Preamble to this Act states the intention of the Act to be the consolidation, reform of the law relating to the incorporation, registration, operation, management and regulation of companies; to provide for the appointment and functions of auditors; to make other provision relating to companies; and to provide for related matters.
 Section 46 E (3) of the Bill
 Established under section 48 of the Bill
 See Section 46 of the Current Copyright Act and Section 2 of the Bill which now specifically defines a CMO as means an organisation approved and authorized by the Board which has as its main object, or one of its main objects, the negotiating for the collection and distribution of royalties and the granting of licenses in respect of the use of copyright works or related rights.