Fifteen officials of ECAD, the Brazilian organization in charge of collecting copyright licensing fees for music, face indictment after a Senate investigation there. The organization is the Brazilian counterpart to American collecting societies such as ASCAP and BMI. The Senate committee also recommended new legislation to overhaul the copyright licensing system in Brazil.

In the political arena, copyright debates are often portrayed as morality plays with industry incumbents as the good guys and file-sharing firms like Megaupload and the Pirate Bay wearing the black hats. Yet the controversy in Brazil is a useful reminder that the picture isn't always so black and white. Incumbents in Brazil and elsewhere have also skirted the law, taking money that rightfully belongs to artists or consumers.

Inside the black box

ECAD's senior leadership stands accused of embezzlement, fraud, and price-fixing. The Brazilian Senate panel described ECAD's collection system as a "black box" and noted that only 76 percent of the fees collected by the organization were passed on to artists.

Ars Technica talked to Ronaldo Lemos, a professor at the Brazilian university FGV and a longtime critic of ECAD. He told us that ECAD's directors got in trouble for approving large bonuses for themselves even as the collecting society was losing money.

"They were caught basically appropriating money that should go to the artists to pay the directors," Lemos told us. "They were losing money even with all their fees. In spite of that, they voted to take money that was retained in the collecting societies and pay the directors a bonus."

ECAD also stands accused of price fixing. The group is structured as an umbrella organization for several individual associations representing different groups of artists. "They have a fixed rate that they charge for their activities," Lemos said. "It's 7.5 percent for each of the associations plus 17 percent for the central office."

"The inquiry commission were puzzled," he added. "All these associations were different. Different names, different records, different histories. So why do they charge the same fee? Why can't one association be more efficient than the other?"

Indeed, ECAD's apparent price-fixing has also caught the attention of Brazil's Federal Trade Commission, which is due to release its own findings soon.

The recommended indictment will be passed on to a federal prosecutor. Lemos told us he was unsure if the prosecutor is legally obligated to pursue the indictments. But he said that the prosecutors will "feel compelled" to follow the Senate's recommendations and bring charges against most of the 15 officials named in the report.

A litigious, opaque organization

Lemos said that ECAD has become extremely unpopular among Brazilian artists and consumers due to its overbearing tactics.

In the early 1990s, government oversight of ECAD was scaled back. The organization "changed their governance model in order to shield themselves from any sort of pressure from stakeholders," said Lemos. "A lot of artists who tried to raise their voices were sued for libel and defamation."

Indeed, Lemos said, one internal document that later became public showed that ECAD's lawyers had considered suing Lemos himself after he criticized the organization in 2004. "They were a litigation machine," he said.

Lemos cited the rise of the Internet as a key factor in breaking ECAD's power. Before the Internet came to Brazil, it was hard for ECAD's critics to either organize themselves or to propose alternative methods for collecting licensing fees. The Internet simultaneously made a more open and transparent collection system technically possible and provided ECAD's critics with the means to organize in support of reform. Lemos said the Senate's findings enjoy broad support among artists and the general public in Brazil.

Restructuring ECAD

In addition to recommending prosecuting those who have allegedly profited from the mismanagement of Brazil's copyright collection system, the Senate also recommended legislation to reform the system and ensure that similar misconduct does not recur. Lemos said he advised legislators on the proposal, which must still be approved by both houses of the Brazilian legislature.

The legislation is designed to overhaul ECAD's increasingly antiquated scheme for calculating reimbursement rates for Brazilian artists. Critics argue the current system is both too skewed toward radio airtime and not transparent enough. Lemos told us that radio play time accounts for about 90 percent of the current sampling formula even though other distribution channels—such as television—account for a significant share of revenues.

In an effort to make the system more transparent, Senators will require collection societies to disclose more information about how revenues are collected and distributed. It will give Brazilian authorities greater power to regulate the collection system and require collecting societies to adopt new and better technologies for tracking usage.

Lemos expressed optimism that the proposal would be enacted this year.

ECAD is not the first collecting society to run into legal trouble. Last year Spanish authorities raided the offices of the Society of Authors and Publishers, ECAD's sister organization, over embezzlement charges. About a decade ago, the recording industry in the United States settled a price-fixing case with state attorneys general. And last year UMG settled federal payola charges.

Nor is ECAD the only collecting society to develop a litigious streak. In 2007, the UK's collecting society began threatening various parties with copyright lawsuits for playing their music too loud. And the American collecting society ASCAP famously threatened to sue the Girl Scouts for allowing girls to sing unlicensed songs around the campfire.

None of this is to excuse the alleged lawbreaking of sites like Megaupload. But it is a useful reminder that incumbents themselves have not always been as careful as they should be to respect the rights of artists or consumers.