Artists Appeal California Resale Royalty Act Invalidation

Artistic and legal minds want to know “Does the California Resale Right Act  (the “Act”) violate the Commerce Clause of the United States Constitution, U.S. Const, Art. I, sec. 8, cl.3?” This is but one of the questions on appeal before the 9th Circuit Court of Appeals following the June 6, 2012 district court decision in Estate of Robert Graham v. Sotheby’s.

More specifically, the questions posed in the 70-page Appellant’s Opening Brief ask “Whether the district court prejudicially erred in holding that the Act impermissibly requires that, when a work of original fine art (as defined in the Act) is sold in California or out of state by a seller who resides in California, the seller or the seller’s agent must pay the artist 5% of the sale proceeds,” and “Whether the district court prejudicially erred in holding that the entire Act (as opposed to portions or applications of the Act) violates the Commerce Clause, and in refusing to apply an express severance provision set forth in the Act.”

Appellants are prepared to argue that in fact the Act is Constitutional under the Commerce Clause because a state may impose levy-collection burden on sellers both domestic and out-of-state so long as the seller has a physical presence or a nexus to the state imposing the levy.” Moreover, in their opinion, the Act is Constitutional under the Four-Part Commerce Clause Test established by the Supreme Court precedent.

While the Act does not intend to regulate commerce outside of California and as Appellants aver it’s economic impact is only felt by California Residence in California Transactions, the lower court invalidated it entirely instead of severing the offensive language in the Act. The Act however includes a severance provision, and while the district court relied on the legislative history to invalidate the Act, it did not honor the severance provision encapsulates into the ultimate language of the act which intended for “all lawful applications of the Act to survive if some others “foundered.”

The Appellants’ Brief was filed on February 28, 2013 and Appellees (Sotheby’s, Christie’s and Ebay) are now expected to submit their brief(s). Given that the two action houses filed comments with the U.S. Copyright Office against a federal resale royalty act, their response is likely to mention that:

“The Auction Houses believe that there is no reason to adopt a federal resale royalty right in the United States and many important reasons not to. … Copyright in the United States, however, is primarily economic in nature, grounded in the constitutional mandate “[t]o promote the progress of science and the useful arts.” U.S. CONST., Art. 1, § 8, Cl. 8. Under the U.S. model, copyright law seeks to balance the author’s incentive to create new works against the public interest in accessing and using such works. A resale royalty right would upset this balance by likely reducing the prices paid to artists in the primary market for their works, as discussed below, while providing artists with little or no additional incentive to create. In particular, it would interfere with the first sale doctrine, …” and the California Act violates Article I, section 9 of the Constitution because it intends to imposing a Bill of Attainder on a small business unit by “singling out … [an entity] for legislatively prescribed punishments…”

Ebay, having submitted its own comment to the U.S. Copyright Office, is likely to argue property rights and the first sale doctrine, which alienates personal property rights to goods once there is consideration paid for them, meaning once money is exchanged between two willing and legitimate parties, property rights passes to the buyer.

Attorneys for the Appellants are Eric George and Ira Bibbero with Browne, George Ross LLP, and Irving Greines and Gary Rowe with Greines, Martin, Stein & Richland LLP.

Sources:  Case Nos. 12-56067, 12-56068, 12-56077 (Consolidated), Paul D. Clement, Comment to the U.S. Copyright Office on behalf of Christie’s and Sotheby’s; Simon Frankel, Comment to the U.S. Copyright Office on behalf of Christie’s and Sotheby’s; Ebay Comment.