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Publicity Rights: A Taxman's Perspective

THE POLICY LAB-30
SEPTEMBER 11, 2023

By J B Mohapatra

PUBLICITY rights or personality rights or image rights worldover are known more when these are subject to trespass or misappropriation than when they are respected and adhered to. So you have an American mother suing an apparel company for using her 4-year old daughter's photo without permission in a brand endorsement; a Formula 1 race driver in Britain suing a company for misusing his photo in an advertisement; an Indian sportswoman successfully bringing an injunction against a slew of companies to cease and desist from un-authorisedly using her victories for commercial advertising and endorsements. The last known litigation in India as reported in 2023 between two companies was on the vires of NFT enabled digital player cards obtained and curated by one company on the basis of exclusive licences from young Indian cricketers obtained for Rs 148 crores and NFT enabled digital player cards of another company which used the player marks and attributes of the same set of players without the players' permission.

Image rights or personality rights generally connote the competency of a person to exclusively control and regulate the commercial use and exploitation of his name, physical and pictorial image, identity, voice, personality and other personal attributes such as a gesture, a signature, nick name etc in any form of commercial exploitation of those personality, personality traits and attributes in the market place. In Elvis Presley Enterprises vs Elvisly Yours, a USA Court of Appeals, 6 th Circuit in its judgement dated 27-6-91 injuncted the defendants from using the name, likeness and image of Elvis Presley, when the Court discovered and made a determination that the plaintiff was the lawful assignee of State and Federal trademarks, service marks, copyrights and identification(publicity) rights of the estate of Elvis Presley. A South African provincial Court in the case of O' Keefe vs Argus Printing and Publishing Company Ltd as early as in 1954 held that un-authorised publication of a person's photograph and name for advertising purposed is capable of constituting an aggression upon the person's dignitas. Delhi High Court in a 2001 judgement (D.M. Entertainment vs Baby Gift House) held the defendants in that case as liable for false endorsement, passing off and violation of rights of publicity, as commercial endorsement and other related rights over the celebrity in question lawfully vested with the plaintiff.

Right of publicity and personality originated in the 1953 judgement in Haelan Corporation Inc vs Topps Chewing Gum Inc , where Judge Jerome Frank relying on the traditional right of publicity doctrine recognised the property rights in a baseball player's photograph that was used on trading cards. In Edison vs Edison Polyfoam Manufacturing Company, the New Jersey Court of Chancery held: " If man's name be his own property……. it is difficult to understand why peculiar cast of one's features is not only man's property, and why its pecuniary value, if it has one, does not belong to his owner, rather than to the person seeking to make unauthorised use of it ."The spirit of the above judgement gets reverberated in the 2017 judgement of India's Supreme Court in K.S Puttaswamy and Another vs Union of India and Others : " Every individual should have a right to be able to exercise control over his/her own life and image as portrayed to the world and to control commercial use of his/her identity. This also means that an individual may be permitted to prevent others from using his name and other aspects of his/her personal life and identity for commercial purposes without his/her consent ."

Vey much as is current and prevalent in USA which deals cases of false endorsement, association and affiliation under Unfair Competition law, and UK handling those under Trademarks Act, 1994 and Data Protection Act, 1988, a smattering of laws in India (section 2(qq)/17/38/38A and 52 of Copyrights Act, 1957; section 2(m), 14 and 35 of Trademarks Act) are generally employed against trespass and transgression of image rights, as specifically issues of violation of image rights is not addressed in a single exclusive legislation, but as stated above, in a slew of existing IPR laws of India. But running through these laws and relevant judgements are 2 common themes : one, that a person has a proprietary interest in his own identity and infringement of his personality rights actuated by unlawful commercial exploitation leads to economic loss; and two, personality right is an immaterial asset, which can be monetised, licenced and traded in the market place for earning an income.

In the context of income from personality rights, it is much easier at least for tax purposes if professional services rendered by an individual are commingled with his promotional services (for example, a sportsperson allowing his employer in the service contract to exploit the sportsperson's image rights through endorsements apart from discharging his on-field duties as a contracted player) consequently making the whole of the contracted receipts taxable as professional income. Situation gets tricky when a person's professional service obligations and promotional service obligations are rendered through 2 separate contracts. It gets trickier when a image rights company is legally assigned to hold, exploit, dispose, licence or sub-licence the personality rights of the individual. If the arrangement with the image rights company is established as genuine and not contrived or artificial, income derived from exploitation of an individual's image rights will of course form part of the company's profits, and the profits passed off as individual's share to the individual may be regarded as a dividend, if the individual holds shares in the image rights company or in some other cases as a royalty in exercise of an embedded IP within the image rights contract with the individual. HMRC, UK's guidance note dated 16-8-17 demarcated 3 versions of tax treatment in cases of payment for image rights (a) payments to self-employed individuals are professional income (b) payments by employers to employees for exploitation of employee's image rights are part of gross earnings arising out of employment and not to be separately treated as payments for use of image rights (c) image rights companies may licence the use of an individual's image to commercial partners in return for image rights payments. The image rights company will pay corporation tax on its profits, and the individual, if a Director or a shareholder of the company may receive a salary or dividend, which will be subject to tax in a normal way. But there are tax jurisdictions where owing to lack of legislative clarity and/or absence of any express provision to favourably countenance any arrangement by and through an image rights company, image rights companies have been many times held as smokescreens and a route for unlawful tax mitigation.

In Indian context, if personality/image rights are treated by implication as a capital asset within the meaning of section 2(14)(a) - "property of any kind held by an assessee, whether or not connected with his business or profession" - the first of the challenges is to determine whether it is necessary for specific reference in law to define and identify personality/ image rights as a capital asset(or an intangible asset) within the scope of available legislation before the computation methodology is triggered. In that context, section 55(2)(a) of the Act up until FA 2023made references to specific intangibles such as goodwill, trademark, brand name, right to manufacture, produce, process any article or thing, right to carry on any business or profession, tenancy rights, stage carriage permits, and loom hours, and worked out the methodology for determining capital gains if there were a sale or transfer of those, but that provision had no specific reference to image/personality rights. Amendments in section 55 vide FA 2023 to include 'any other intangible asset' and 'any other right' to the already existing block of goodwill, right to manufacture, produce or process any article or thing, the right to carry on any business or profession in subsection (1) and similar insertion in subsection 2(a) would have obvious legislative intendment for including among others image rights/ personality rights as one of the taxable capital assets hitherto indicated in section 2(14). However to hold that cost of acquisition or improvement in relation to 'any other right' for the purpose of profession to be nil so far as image/personality rights is concerned, may not be factually coordinated with the field realities, as image/ personality rights is not the sole creation of the individual concerned, but comes out of the combined contributions of agents, publicists, sponsors, advertisers, merchandise licensees and the media. There is justification for factoring in all these costs incurred towards personality/image rights as cost of acquisition and/or improvement in terms of section 55 instead of ignoring the associated costs thereof.

Second of the challenges will be determination of fair market values of image/ personality rights on the date of transfer. Fair market value in relation to a capital asset under section 2(22B) means (a) price that the capital asset would ordinarily fetch on sale in the open market as on the relevant date and (b) where the price above is not ascertainable, such price as may be determined in accordance with the rule made under the Act. There are no rules as yet for determining personality rights if sold, transferred, or assigned, and as far as 'price that the capital asset would ordinarily fetch on sale in the open market on the relevant date' is concerned, there obviously is a paucity of acceptable benchmark and abundance of opacity in valuation of personality rights.

If personality / image rights is a property based doctrine, its sweep in this age and day should never be meant to include only the cases of established 'celebrities', but to any individual ranging from a failed artist, a reality TV participant, travel blogger, a cartoonist, social media influencer, a mimic and such like, whose personality marks and attributes including name, appearance, reputation, likeness, nickname, fame, image, illustrations, biographical information, career achievements, initials, signature, voice, photograph, posters, portraits, caricature etc are capable of being monetised, marketed and traded. Image rights companies earlier utilised these personality marks and attributes for creating audio-visual content or marketing material for merchandising and those vey same materials are now being used for producing digital collectibles, NFTs and fan tokens. With so much riding on image and personality rights, its monetisation through sale, transfer, licencing or assignment through any other mode, and attendant issues of transferability and succession, it is time that more legislative clarity for easier administration of law with regard to creation and transfer of those rights and specifically the position of image rights companies in the whole process get their due notice and resolution.

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