Artist Resale Royalty Rights – Is a US Droit de Suite in our Future?

December 3, 2013

By Hanoch Sheps*

Contention, concern and equity – three words that best describe a recent discussion of proposed federal legislation for an artist’s resale royalty right in the United States. If passed, US artists would also benefit from the royalties on sales in other countries with resale royalty rights through reciprocity protocols. Currently the lack of a resale right in the US prevents such participation.

Last week, the International Foundation for Art Research held a panel discussion on the pros and cons of adopting an artists’ right known as the droit de suite which exists in one form or another in Europe and elsewhere. The only US equivalent existed on the state-level in California until the U.S. District Court in Los Angeles recently found it unconstitutional, a decision currently on appeal. [Estate of Robert Graham v. Sotheby’s Inc. C.D. Cal.No. 2:11-cv-08604-JHN-FFM, complaint filed 10/18/11; Sam Francis Foundation v. Christie’s Inc. C.D. Cal.No. 2:11-cv-08605-SVW-PJW, complaint filed 10/18/11].

The controversial right in its basic form is a compensation for secondary art market sales artists. Emerging in early 20-th Century France, some 50-70 countries in the European Union, South America, and Australia have since adopted a resale right. Most recently, the UK adopted a resale right pursuant to the European Union 2006 directive. There, the resale right guarantees a percentage of the resale price which is nontransferable, not waivable, lasting throughout the artist’s life plus 70 years. Amongst other goals, the limits imposed on resale rights prevent parties contracting with unwary or emerging artists from signing away this bundle of rights. In theory, as the value of an artist’s oeuvre appreciates, that artist stands to benefit from appreciation of his or her artworks in the art market.

Here in the US, the notion of a resale right is not novel and dates back to the 1980’s. The previous iteration of the Equity for Visual Artists Act, proposed in 2011, stalled in congressional committee debate. However, targeted studies performed by the U.S. Copyright Office and some new Senate sponsors (Senator Tammy S. Baldwin (D-Wisc.), and Senator Edward J. Markey (D-Mass.)) hope to breathe new life into the legislation. (See here for more Center for Art Law articles on resale rights.)

Speaking at IFAR’s event, The Honorable Jerrold L. Nadler, Congressman (D-N.Y.), Karyn Claggett, Esq., Associate Register of Copyrights and Director of Policy and International Affairs at the U.S. Copyright Office, Philippa Loengard, Esq., Assistant Director and Lecturer in Law, Kernochan Center, Columbia Law School, Sandra Cobden, Esq., General Counsel and head of Dispute Resolution and Legal Public Affairs at Christie’s, and Dr. Theodore Feder, Founder and President of the Artists Rights Society. Congressman Nadler, a sponsor of both the original and revised bill, addressed the need to create a balance between visual artists and authors, writers and musicians who benefit from other rights under US Copyright law. While musicians have a royalty system in associations like ASCAP and BMI, for example, visual artists have no comparable system. In an effort to succeed where prior legislation proposals failed, Congressman Nadler and his co-sponsors have asked the US Copyright Office to report on the impacts of the proposed legislation, the effects of similar laws in other countries on the art market and artists, and the potential efficacy of the right in achieving the goal of visual artist equality. [View the Equity for Visual Artists Act of 2011 here].

One of the immediate changes to the prior legislation is a royalty below the previous proposal of 7% and no cap on sale proceeds to be remitted to a royalty society, with all proceeds going to the artist. Previously, half of the proceeds would have been kept for the use of museums to create new art acquisition funds, but according to feedback from museums, says Nadler, they simply do not want the money. Auction houses will still bear the burden of collecting the royalty, which will likely to be added to already existing seller and buyer premiums. Galleries and dealers are conspicuously left out of the legislation in part because auction houses offer more transparency in the public recording of sales, but perhaps more so because galleries would be an entirely new source of opposition to the legislation.

With the new report to Congress by the Copyright Office due out in the coming weeks, Ms. Claggett responded to criticism the proposal received from different interested parties. The Copyright Office seeks to reconcile the proposal with the laws in other countries, amongst other US government studies, and its report issued for Congress back in 1992. Those compiling the current report ran into expectable obstacles such as the lack of transparency in art market transactions, but also found it difficult to grasp how artists actually struggle. The obvious question of the efficacy of the proposed law seemed to take a lot of foundation from a review of foreign laws. For instance, in the United Kingdom, there was no appreciable evidence that the royalty reduced art prices, or drove away sales from the UK, a main concern of oppositionists. Actually, it appears that the UK art market is growing faster than others in the region. (For the Center for Art Law’s response to a request for comments by the Copyright Office, see link).

Ms. Cobden represented the minority on the panel—part of a small but powerful collective of entities in opposition to the legislation, the auction houses. Christie’s sees itself in an awkward position of opposing the resale right where it otherwise considers itself a staunch supporter of artists. After all, the success of the artists has a positive correlation with the success of the auction house.  Auction houses opposed the previous legislation, the EU directive, and a debate over the right which is currently on the metaphorical back burner in China. Note, both Christie’s and Sotheby’s were also defendants in the CA case decided in 2012 . Christie’s justifies its opposition at least on three grounds:

1. A royalty hurts the market: Citing statistics compiled by Dr. Clair McAndrews at Art Economics, Ms. Cobden notes that there was a complete recovery of the US market from the 2008 recession, whereas economies that have a royalty scheme saw fractional recoveries.
2. A royalty would change US Copyright law in a manner that dilutes protection for private property: Christie’s posits that artists are on a level playing field with authors, writers and musicians. A royalty would go beyond what other artists receive as they only profit from the initial sale. Payments on subsequent transactions would seriously encroach on the freedom of alienation of personal property, a central tenet of US Copyright law (encompassed by the “first sale” doctrine). Granting artists a royalty would also make it difficult to distinguish other creator; should the architect get a royalty for the resale of a house he designs, or similarly a jeweler, fashion designer, or furniture maker?
3. A royalty would not achieve the goal of helping a significant number of artists: Statistics simply do not show that the initiatives will help most artists – reports show that only 3% of UK artists are eligible for the royalty, and the most royalties went to the most successful artists.

“The resale royalty scheme is a broken model,” says Ms. Cobden, but Christie’s does not see in its opposition the inability to collaborate and propose alternatives to the legislation. Rather than a resale right, focus efforts to support artists on promoting sales in the primary market, or perhaps allow artists to get tax incentives for donating art to museums or other institutions.

Congressman Nadler as well as nearly every other panelist speaking at the IFAR Evening were eager to retort and confront Ms. Cobden on both the overall opposition and proposals. Simply put, major artists are likely to get most of the residuals as any performing artist would – “Elvis is going to see more residuals than a nobody,” says Congressman Nadler. But even if the royalty only helps a few artists, their position is that it is far better to help some than none. That major artists benefit in the aggregate does not diminish the value of the right. Also, even though “lesser” artists may see a smaller percent of residuals, we cannot discredit the fact that the artists themselves may see the residuals as critically important, however small they may be.

Dr. Feder spoke passionately to rebut claims that only rich artists benefit from royalties. In fact, he claims, statistics out of the EU show significant numbers of artists that benefit from the resale right. Dr. Feder noted that the same concerns over market losses by US oppositionists were felt  in the UK over the adoption of the royalty scheme there but were ultimately baseless. (See “UK’s Artist Resale Royalty Law Didn’t Damage the Art Market (Despite All the Claims)”, Huffington Post, 9.14.12)

Wherever one’s allegiances may lie, it will be the members of congressional committees who get the next opportunity to debate the matter. The revised bill is expected to be reintroduced in January.

 *About the Author: Hanoch Sheps, J.D. is a recent graduate of New York Law School. He may be reached at Hanoch.sheps2@gmail.com or 201-696-6881.

Disclaimer: This and all articles are intended as general information, not legal advice, and offer no substitute for seeking representation.