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 big 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.)
Though 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.)
(Reporting by Alison Frankel)
Follow us on Twitter @AlisonFrankel, @ReutersLegal | Like us on Facebook