Two Lawsuits by Artists May Test Validity Of California Resale Royalty Rights Statute

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By Anandashankar Mazumdar

A group of artists, including hyperrealist mega-portraitist Chuck Close, filed two actions Oct. 18 with the U.S. District Court for the Central District of California asserting rights under a California statute to a share of the revenue when their works were resold (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).

Should these claims be substantively addressed, the court would have to reconcile them with the first sale doctrine, 17 U.S.C. §109(a), which gives a creator no rights to control the subsequent disposition of copies of works once they have been sold off. It might also implicate the Takings Clause of the Fifth Amendment of the U.S. Constitution, which prohibits the government from taking private property for public use without compensation.

State Statute Mirrors Europe's ‘Droit de Suite.'

The claims are based on the California Resale Royalty Act, Cal. Civil Code §986, which gives a painter, sculptor, or other similar creator of a work of “fine art” the right to 5 percent of the sales price from downstream sales of a work by an art gallery, dealer, broker, museum, or other art sales agent. The resale price of the work at issue must be $1,000 or more. The right is enforceable by a creator's heirs up to 20 years after his or her death.

“Fine art,” as defined by the statute is” an original painting, sculpture, or drawing, or an original work of art in glass.”

This statute is akin to the “droit de suite”—the right of an artist to a share of revenue from sales of his or her work—which was first enacted in France in the early 20th century and is now part of European Union law.

However, such compensation may be in conflict with American law. For example, under Section 109(a) of the Copyright Act of 1976, which codifies the common law first sale doctrine, the owner of a copy of a creative work has the right to dispose of it without the authorization of, or payment to, the creator.

Tyler T. Ochoa, a law professor at Santa Clara University, Santa Clara, Calif., told BNA that not only is there the potential of Section 109(a) preempting the California statute, but also that at a very basic level, the idea of a resale royalty conflicts with American concepts of property.

“It's sort of inconsistent with the importance of property in the American psyche,” he told BNA. “We generally place a lot of importance on ‘This is my property and I can do what I want with it' … and this is a restraint on alienation.”

Ochoa noted that after the California statute was enacted, the U.S. Court of Appeals for the Ninth Circuit issued a decision upholding the law in the face of a preemption challenge. However, he emphasized that this decision explicitly noted that it was being resolved under the Copyright Act of 1909, which, unlike the current law, did not include a preemption provision. Morseburg v. Balyon, 621 F.2d 972, 207 USPQ 183 (9th Cir. 1980).

Possible Takings Issue Implicated

Emily Eschenbach Barker of Seyfarth Shaw, San Francisco, told BNA that the California statute might also represent an uncompensated taking in violation of the Fifth Amendment.

Barker published a law review article early this year detailing her conclusion. Emily Eschenbach Barker, “The California Resale Royalty Act: Droit de (not so) Suite,” 38 Hastings Const. L. Q. 387 (Winter 2011).

The takings problem would exist with respect to works whose current owners did not originally pay the 5 percent royalty when they acquired the works, but would be subject to paying it upon sale, Barker said.

She concluded that there might be a remedy if the statute were to be rewritten to convert the royalty to a tax, and also if the 5 percent were applied to the profit rather than the sales price.

As to the two lawsuits filed Oct. 18, however, Barker told BNA that it was significant that the plaintiffs are seeking class action status. She said that it seems likely that it will be difficult to establish a sufficient commonality of facts requisite to getting a class certification.

Barker also pointed out that although the purpose of the statute is ostensibly to protect artists, it is of some significance that very few artists would be likely to meet the price threshold of $1,000, even if this law were to apply to their transactions.

“Of the thousands of artists in this country, only about two to three hundred have a significant resale market,” she told BNA. “And those artists have a resale market because they have succeeded already.”

Auction houses such as Christie's and Sotheby's seek the highest profit margins and are thus likely to deal in works that already have significant name recognition; that is, works whose creators are already famous.

“Artists that are not well-established are probably not going to be in there,” she said.

Auction Houses Named as Defendants

The prominent auction houses Christie's and Sotheby's are the defendants in the two cases. Each is accused by the plaintiffs of auctioning eligible works without complying with the royalty requirements of Section 986.

Furthermore, the plaintiffs charge that the auction houses had “engaged in a pattern of conduct intended to conceal … those circumstances in which a Fine Art sale—because it involved a California resident seller, or because the sale took place in California—entitled plaintiffs … to a Royalty.”

The complaints note that the auction house catalogues generally do not indicate the state of residence of a seller and furthermore that they do not divulge such information upon inquiry. According to the complaints, concealing the state of residence is not necessary to maintain the anonymity of any seller.

In both cases, the plaintiffs have sought certification as a class action. The named plaintiffs in the Sotheby's case are the Estate of Robert Graham, Chuck Close, and Laddie John Dill. In the Christie's case, the named plaintiffs also include the Sam Francis Foundation. The plaintiffs seek royalties with interest, punitive damages, and injunctive and declaratory relief to ensure that any future auctions of the relevant works in California are accompanied by royalty payments.

Charles Thomas “Chuck” Close is known for his massive photographed and painted portraits. Robert Graham, who died in 2008, was a bronze sculptor whose works included the ceremonial gateway for the 1984 Summer Olympics in Los Angeles. Laddie John Dill is a California painter. Painter and printmaker Samuel Lewis Francis died in 1994.

The complaints also include claims under the California Unfair Competition Law, Cal. Bus. & Prof. Code §§17,200 et seq.

The Christie's case has been assigned to Judge Steven V. Wilson and referred to Magistrate Judge Patrick J. Walsh. The Sotheby's case has been assigned to Judge Jacqueline H. Nguyen and referred to Magistrate Judge Frederick F. Mumm.

The artists are represented by Eric M. George of Browne George Ross, Los Angeles.

Complaints at http://pub.bna.com/ptcj/1108604Oct18c.pdf and http://pub.bna.com/ptcj/1108605Oct18c.pdf

Text of the California Resale Royalty Act of 1976 at http://pub.bna.com/ptcj/CalCivilCode986.pdf