Opinion

Alison Frankel

Should artists get royalties on resales? California judge says no

By Alison Frankel
May 19, 2012

There’s a peculiarity in U.S. copyright law that must drive painters and sculptors nuts. When writers, composers, photographers, and filmmakers obtain copyrights, they’re entitled to royalties every time their work is sold. Not painters or sculptors. Under the U.S. Copyright Act (in contrast to many copyright regimes in Europe), once a piece of art is sold, all rights to the physical work belong to the buyer. No matter how much the art appreciates in value, artists aren’t due a penny when the work is resold. All of the profits belong to sellers, not to creators.

There is only one exception to that rule in the United States: the 1977 California Resale Royalties Act, a so-called droit de suite law that grants artists a continuing interest in their work when it changes hands. The law holds that anytime a work is resold in California, or is resold by a California owner anywhere else in the world, the seller’s agent must pay 5 percent of any sale price over $1,000 to the original artist. The artist must only be a U.S. citizen or California resident to qualify for the California resale royalty.

California is the only state in the country that has such a law. New York has considered droit de suite legislation on more than one occasion but has never enacted resale royalties for artists. Similarly, Congress has declined to include resale royalties for artists every time it has reconsidered the copyright statute.

Enforcement of California’s law has been spotty over the last 35 years, according to an opinion issued on May 17 by Judge Jacqueline Nguyen, a judge on the 9th Circuit Court of Appeals who was sitting by designation in U.S. District Court in Los Angeles. Even though artists all over the country qualify for resale royalties, only about 400 painters and sculptors have received a total of $328,000 in resale royalties since the Resale Royalties Act took effect. A 1986 survey of Bay Area artists found that dealers frequently refused to comply with the law when artists asked about the identity of new owners or resale prices. For the large auction houses, Sotheby’s and Christie’s, California’s law wasn’t a big deal.

That all threatened to change when the painter Chuck Close and three other artists (or their estates) filed a class action claiming that Sotheby’s and Christie’s owed artists untold millions in resale royalties from the resale of works belonging to Californians. The California law has a three-year statute of limitations but also includes a provision tolling the statute for artists who weren’t aware of their rights. So in a worst-case scenario for the auction houses, the class action, filed by Browne George Ross, was bet-the-company litigation.

Nguyen defused the threat on Thursday in fascinating fashion. The judge agreed with lawyers for the auction houses (Skadden, Arps, Slate, Meagher & Flom for Christie’s; Morrison & Foerster and Weil, Gotshal & Manges for Sotheby’s) that California’s law violates the Commerce Clause of the U.S. Constitution because it’s an attempt by one state to control commerce outside of its borders. “Under its clear terms, the [Resale Royalties Act] regulates transactions occurring anywhere in the United States, so long as the seller resides in California. Even the artist – the intended beneficiary of the CRRA – does not have to be a citizen of, or reside in, California,” Nguyen wrote. “For these reasons, the court finds that the [law] has the ‘practical effect’ of controlling commerce ‘occurring wholly outside the boundaries’ of California even though it may have some ‘effects within the state.’ Therefore, the [law] violates the Commerce Clause.” (Skadden’s Jason Russell made the Commerce Clause argument for the auction houses at oral arguments before Nguyen in March.)

The curious thing is that it took 35 years for the Resale Royalties Act to be struck down as unconstitutional. As Nguyen recounts in her ruling, California’s legislative counsel wrote an opinion letter way back in the 1970s, when the state was drafting the law, noting that if California attempted to extend resale royalties to sales outside of the state, the act would be invalid under the Commerce Clause. (The state’s concern, however, was that if it limited resale royalties to sales within the state, art dealers would stop doing business in California.) Although commentators on California’s law often mentioned the Commerce Clause, defenses based on federal pre-emption and the Fifth Amendment’s takings provision tended to get more attention.

In the only other fully litigated case on the Resale Royalties Act, Morseburg v. Balyon, the 9th Circuit Court of Appeals in 1980 affirmed a lower-court ruling that the California law was not pre-empted by federal copyright law and did violate constitutional due-process and contracts provisions. The judge said in Thursday’s ruling that Morseburg didn’t address the first-impression question of the Commerce Clause, so it didn’t control in this case.

Class counsel Eric George of Browne George sent an email statement: “The artist protection law was properly enacted by California’s legislative and executive processes, pursuant to powers the U.S. Constitution reserves to the states. For a single federal judge to invalidate the law more than 35 years later and without allowing any evidence to be taken, it marks a departure from established constitutional law. We are confident, as both sides have always believed, this case will ultimately be resolved by the 9th Circuit Court of Appeals, which already upheld this very statute in 1981.”

(This story has been corrected. A previous version reported Judge Nguyen sits on the 11th Circuit.)

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