Credit: Courtesy of Southeby's
The artist resale right, a concept that gives the original artist or their descendants the right to collect a royalty when the artist’s work is sold after the initial sale, has been rejected by American federal law. Artist resale royalties benefit the original artist and give them a percentage of an asset that often exponentially increases in value while still giving the reseller the lion’s share. California’s attempts to implement the concept through state law, mirroring the European approach that generally favors artist’s rights, struggled and was ultimately deemed unconstitutional. The question remains as to whether this right could and should be implemented into American law.
The Troublesome Life of the California Resale Royalty Act:
Passed in 1976, the California Resale Royalty Act (the Act) was the first-of-a-kind state legislation in the United States introducing the Artist’s Resale Royalties (known also as droit de suite) to the American legislation. The groundbreaking law set upon an arduous path of extending original artists’ rights into the life of their work beyond the first sale. California’s law ensured that artists were entitled to a five percent resale commission on all subsequent sales of their art (beyond the initial transaction). This right could not be waived; however, the law established some stringent limitations as well. First, the law only covers transactions where the seller resides in California or the sale takes place in California. Second, the artist must be a U.S. citizen or a California resident for at least two years. Third, the Act only covers transactions that occur during the artist’s lifetime or within twenty years from their passing. Finally, the Act imposes additional limitations on the value of the work sold; it must have sold for a minimum of $1,000 (measured in cash or the fair market value of the goods exchanged), and the price must be higher than what the seller had originally bought it for (in essence, the Act does not cover situations where the artwork is resold at a loss).
In 2011, a group of California-based artists brought a class-action lawsuit against Sotheby’s, Christie’s, and eBay for failing to collect artist resale royalties from sale proceeds from works by California artists. In 2012, the United States District Court for the Central District of California dismissed the suit on the grounds that the Act violated the Commerce Clause of the United States Constitution and was therefore invalid. Contained in Article 1, Section 8, Clause 3, the Commerce Clause gives Congress the power “to regulate commerce with foreign nations, among states, and with the Indian tribes,” and has historically been construed as one of the clauses with the broadest coverage in the Constitution, granting Congress the power to regulate the U.S. commerce and many areas of the law which could have influence on the commercial relationships.
Invoking the so-called “Dormant Commerce Clause,” reading the Commerce Clause in a way that prohibits the states from discriminating against or burdening the interstate flow of articles of commerce, the court reasoned that the Resale Royalty Act did just that by forcing various auction platforms to incur additional costs when conducting transactions within California. Further, the court indicated that the Act appeared to regulate transactions beyond California's borders, since the Act covered sales occurring anywhere in the United States, as long as the seller resides in California. As a result, the district court decided that, because the very core provisions of the Act were unconstitutional, despite the severability provision, the Act in its entirety should be invalidated.
In 2014, the Ninth Circuit, reviewing the case en banc on appeal, proceeded more carefully. While agreeing with the district court on the unconstitutionality of the parts of the Act concerning the out-of-state transactions, the Court of Appeals determined that the Act nevertheless remained good law, at least in part—specifically, concerning the sales occurring within California borders. The Court of Appeals distinguished the resale fees imposed by the Act from taxes (imposition of which is permitted outside of the State), reasoning that the law regulates fee exchange between private parties. As a result, the Ninth Circuit affirmed the dismissal, but breathed second life into the Act by ruling that the statute would retain its “coherent functionality” even if limited to only transactions occurring in California.
However, this was not the end of the line yet for the Act, as the district court in 2016 again deemed the law invalid, this time based on the preemption argument. Comparing the Act to the federal Copyright Act of 1976, the court opined that the First Sale Doctrine in the latter legislation fully expresses Congress's view of the mechanisms of distribution of expressive work, and thus California is preempted from regulating the issue on its own.
Finally, most recently, in 2018, upon return of the roving case to the Ninth Circuit, the discrepancy between the 1909 and 1976 Copyright Acts took center stage. While the 1976 Act's section 301 contains a clear preemption clause, the older statute does not—in fact, it contains an explicit provision to the opposite (contained in section 109). As a result, the Ninth Circuit held that the California statute did not conflict with the 1909 Copyright Act and was thus valid—but only within the very narrow period before the enactment of the 1976 Act, which became law in 1978. Considering that the Resale Royalty Act itself was enacted only in 1976, this limited the covered period to a little more than a year in the 1970s. Accordingly, while the Resale Royalty Act remains alive today, it is essentially on life support, affecting only transactions from a single year between 1977 and 1978.
The Federal Stance on Artist Resale Royalties:
Defining artist resale royalties is a federal question. Two main arguments nullified the Act: federal regulation of interstate commerce and the Copyright Act. The U.S. Constitution's Article I, Section 8, Clause 3 “gives Congress broad power to regulate interstate commerce and restricts states from impairing interstate commerce”. State legislation promoting resale royalties for visual artists conflicts with federally regulated interstate commerce as not all art dealers contract to sell within state lines. Furthermore, 17 U.S.C. § 301, preempts the passage of state legislation like the CRRA. Preemption applies “when a state law actually conflicts with federal law or when a state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the federal law.” Because of the conflict between the First Sale Doctrine, as enumerated in 17 U.S.C. § 109(a), any non-federal resale royalty legislation would directly subvert the ownership rights of purchasers. Both issues illuminate the only solution to artist resale royalties: federal legislation.
Enacted in 1976, the Copyright Act—17 U.S.C. § 106—grants exclusive rights to artists to reproduce, create derivative works, and distribute copies of their work. However, these rights are limited, focusing on the ownership of the original idea, rather than the creative work. Once the visual art is produced and sold, the lawful owner is entitled to sell or otherwise dispose of the work without authority from the copyright owner.
In 1990, the Visual Artist Rights Act was signed into law, establishing certain moral rights of visual artists: the rights of attribution and integrity. Under this law, a limited class of visual art proscribes additional rights to the original author of the work, regardless of the ownership of the work or copyright. These rights include the right to claim authorship, the right to prevent distortion of the work, and the right to prevent the use of one’s name on any work the author did not create or that has been distorted. A stipulation of this act was a study on the feasibility of implementing further legislation that would create a resale royalty right on the sale of visual art.
In 1992, the Register of Copyrights published its report, concluding that the economic interests of visual artists would not be helped by a resale royalty and that the limitation on feasible policy for implementation does not justify federal resale royalty legislation. The report stipulated that implementing a resale royalty would diminish the potential for profit in the primary sale due to dealers factoring in later resale royalties, which would disproportionately affect newer artists and those with a slower medium, as they depend on profits from initial sales much more. Furthermore, resale royalties conflict with fundamental U.S. principles of free alienability of property. Ultimately, Congress did not enact legislation to create a federal resale royalty right.
Credit: Matthew Henry | Freerange Stock
New Developments for Resale Royalties Act:
Following the wake of outrage in the artist community stemming from the strike down of the CRRA, Congress again asked the Copyright Office to solicit public comments about a potential resale royalty. The report, published in 2013, observed that visual artists are disproportionately affected by the lack of resale royalties, as their works are produced singularly and valued for their scarcity, enabling collectors to reap the increase in value of the work over time.
Furthermore, the report points to over seventy foreign countries, in comparison to the thirty-six in 1992, with a resale royalty provision. Ultimately, the report concluded there was evidence that the main concern of the initial report, economic loss, is not supported in light of other countries' art markets following the introduction of resale royalties. The report acknowledged the disparity in visual art earnings and supported legislation, along with other non-legislative measures to introduce to the market.
The American Royalties Too Act of 2014, or “ART,” has been introduced to the Senate and House of Representation following the recommendations outlined by the 2013 report. While it has been well received, a strong opposition backed by Christie’s and Sotheby’s, two of the largest fine art companies, has limited its upward momentum. There are still significant concerns about properly protecting all artists and the limitations imposed by the First Sale Doctrine. For these reasons, there has been very little movement in Congress. As of now, the American Royalties Too Act of 2018 has been read twice and referred to the Committee on the Judiciary. No further movement has occurred.
The Future?
Proponents of artist resale rights claim that the concept supports artists, while the opposition holds that it hinders the free market rights of art purchasers. It would be a large step in the progression of artist’s rights in the United States if resale rights were to be implemented, as it would alleviate the unfortunate trend of the “broke artist,” who may die destitute while their work sells for millions of dollars. Current American law on the federal level has accepted the arguments against the resale right, and there seems to be a lack of political will or interest in changing the status quo. Perhaps if a movement were to bring more attention to this issue, the political attitude towards this right may change. But currently, the artist’s resale right will likely continue to be a rejected concept in American law.
*The views expressed in this article do not represent the views of Santa Clara University.