By Louise Carron.
For the first time since its creation three years ago, the Federal Bar Association’s Art Law & Litigation Conference moved from Miami to New York on February 7, 2019. Held at the National Arts Club in Gramercy Park, an appropriate setting for such an esteemed gathering due to its elegant art collection and grand architecture, the day-long conference covered a range of legal issues related to litigation in the art world and the visual arts.
Panel 1. Practical Tips for Art Law Practitioners
Christopher Robinson (Partner at Rottenberg Lipman Rich, P.C.) started the day off by explaining the issues which attorneys should watch out for when dealing with artists and galleries, including understanding the dynamics of the art market, the upsides and downsides of running brick and mortar galleries versus art fairs, and the rising role of the internet in art sales, which requires compliance with federal and state sales tax laws and EU privacy laws. He also underlined the difference between consignment agreements, which are typically short-term and for a specific project, and representation agreements, where artists and dealers agree to a long-term relationship. Lawyers should consider exclusivity clauses, expenses, the right of first refusal, and building in an exit strategy into contracts.
Amanda Rottermund (Associate at Withers Bergman LLP) continued with the recent tax developments hitting the art market, including the Supreme Court decision of South Dakota v. Wayfair,[i] which overruled the “physical presence” requirement, making out-of-state sellers subject to state sales tax. Other states are beginning to implement their own versions of the rule, which will likely have an impact on auction houses and other interstate art businesses. She also noted that beginning in 2019, the Tax Cuts and Jobs Act of 2017 will be effective, now permitting “Opportunity Zones” whereby sellers of a valuable piece of art can defer their capital sales gain tax by investing in real estate located in opportunity zones around the country (stay tuned for a dedicated article on the blog).
Karin Barkhorn (Counsel at Bryan Cave Leighton Paisner LLP) then dove into estate planning for artists, advising that they should all have basic paperwork documented, including health care proxy and a will or trust instrument. She provided the example of artist Robert Indiana’s estate, which is currently in the midst of a legal battle over his grant of power of attorney to his former caretaker.
Peter Anthony (Senior Managing Associate at Dentons) discussed art disputes with the Internal Revenue Services, noting that art valuation is an area of likely abuse as the IRS has the power to suspend appraisers. In order to correctly prepare for such disputes and prevent suspension, he presented a checklist: follow the requirements based on the tax issue at stake; include comparables whenever possible; be careful when relying on private sales; document and keep records for at least seven years; and be strategic, timely, reasonable, responsible and respectful as much as possible.
Panel 2. Salty Impressionism – Art Aboard Vessels
Led by Michelle Otero Valdés (Attorney at Chalos & CO, P.C.), the second panel dove into issues of fine arts aboard boats. When art is on board a vessel, casualties go beyond actual damage. Having the proper insurance, security, paperwork, and climate conditions is obviously important. However, the matter becomes more complicated when admiralty law is triggered, i.e. when damage to property occurs relating to (1) a vessel, (2) in navigation, (3) on navigable waters, (4) during the course of traditional maritime activity, and (5) with the potential for affecting maritime commerce. This will may permit a plaintiff to jumpstart in rem proceedings against the whole vessel and everything contained within it, and to request that a maritime lien be imposed on the vessel and its appurtenances. It made us wonder: how many people are actually affected by such issues? In any case, the message was clear that boat owners should really think twice before putting fine art on their yacht.
Panel 3. Money Laundering in the Art Market: The Current Landscape
The last panel of the morning was started by Laura Patten (Art & Finance National Leader at Deloitte), who went back to the definition of money laundering, i.e. the mixing of illegally obtained value with “clean” property, and how art has been used as a commodity to integrate criminal funds into the flow of assets. The art market is particularly vulnerable to money-laundering as it is an opaque market where the value of the commodity is quite subjective. Andrew Adams (Co-Chief of the Money Laundering and Transnational Criminal Enterprises Union at the United States Attorney’s Office in the Southern District of New York) explained the legal background of Anti-Money Laundering (“AML”) provisions and regulations and how they apply to looted antiquities and art in the United States as well as art in the European Union. They mentioned the necessity to define a set of money laundering red-flags similar to the Art Loss Registry, highlighting the need for due diligence from all parties involved and the conflict between vetting buyers and sellers.
Panel 4. Art and Photography: Copyright Implications in the Digital Age
Panel 5. What is Art? How Copyright Law and the Arts Community Each Answer an Age-Old Question
The final panel of the day dove into the eternal question: What is art? From a legal perspective, we usually turn to copyright law to answer the question, but that may not be the right solution. Since copyright (1) distinguishes between idea and expression, (2) requires that the work be fixed, and (3) does not protect useful articles, a vast majority of artworks cannot automatically be protected, such as in the case of conceptual art, gardens, or performances. June Besek (Executive Director of the Kernochan Center for Law, Media and the Arts and Lecturer in Law at Columbia Law School) stated that copyright law has no interest in the aesthetic qualities of the work. Copyright litigation in the visual arts is tricky because attorneys have to navigate the criteria of originality, creativity, utility, and aesthetics.
Margaret Wheeler-Frothingham (Managing Associate at Orrick Herrington & Sutcliffe LLP) explained the limitations of copyright law as related to the visual arts, as it does not protect post-modernist art, which is based on borrowing and commentary. One may think of movements such as minimalism (where the idea is the art) and Dadaism (which broke down the definition of art into abstract conceptions), and art forms such as performance art (where the idea is at the center of the representation, and the expression is only peripheral) and appropriation art (which gives a new meaning to pre-defined items). This invokes the paradox: although a work may be valuable, it may not be protected by copyright, or even need copyright protection.
Nancy Wolff (Partner at Cowan, DeBaets, Abrahams & Sheppard LLP) then dove into the issue of utility versus aesthetic appearance. Taking the example of jewelry, protection exists on the selection and arrangement of elements (akin to the rationale for the copyrightability of photographs), and there is a “thin copyright” protection for elements that already exist in the public domain or that are close to nature or reality. When it comes to useful articles, such as clothes or furniture, following the US Supreme Court decision of Star Athletica v. Varsity Brands, a design can be protected if “conceptually” separable from the article itself.[vi]
While the panels explored a range of topics, there’s still so much more to be discussed. We thank the Federal Bar Association for inviting us to this year’s conference, and we are looking forward to next year’s discussion to examine the rapidly evolving field that is art law.
[i] South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018).
[ii] Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).
[iii] Cariou v. Prince, 714 F.3d 694 (2d Cir. 2013).
[iv] Graham v. Prince et al., No. 1:15-cv-10160 (S.D.N.Y. filed on Dec. 30, 2015).
[v] Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007).
[vi] Star Athletica, LLC v. Varsity Brands, Inc., 580 U.S. ___ (2017).
About the Author: Louise Carron is the Executive Director of the Center for Art Law, where she conducts research and writing in the legal issues related to art and cultural heritage.