California Royalties Law Redux Lands at Ninth Circuit

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From The Courthouse News Service:

Attorneys in a seven-year class action lawsuit between a group of California artists and Sotheby’s and Christie’s sparred before a Ninth Circuit panel Tuesday over whether a state law requiring royalties from auction sales is pre-empted by federal copyright law.

. . . .

[T]he artists seek reversal of U.S District Judge Michael Fitzgerald’s finding of pre-emption in April 2016.

The California Royalty Resale Act requires resellers of fine art to pay a 5 percent royalty to the creator if the seller is based in California or the sale takes place in the Golden State.

Attorney Michael Bowse with Browne George Ross, representing the artists, told the panel his clients have the right to “dictate transactions” involving their works.

He called California “the center of filmmaking” and home to many artists because the state “prides itself on protecting the arts.”

The Copyright Act has nothing to do with reproduction or redistribution of art, Bowse said, but does provide the artist with the opportunity to receive royalty payments. The 5 percent royalty “doesn’t operate as a burden” in sales of fine arts, he said.

But the auction houses say the state law is pre-empted by the first-sale doctrine of the Copyright Act, which allows someone who owns a copyrighted work such as a painting or a copy of a book to sell it without the permission of the copyright owner.

Bowse pushed against the doctrine, saying it “terminated” the rights of artists for full control over distribution of their work.

. . . .

The class, which could include hundreds of artists, say the auction houses “engaged in a pattern of conduct to conceal” sales of fine art and didn’t tell artists so they could collect royalties.

. . . .

The litigation began in 2011 as a trio of class actions targeting Christie’s, Sotheby’s, and eBay. The named plaintiffs are heirs of prominent California sculptor Robert Graham, painter and photographer Chuck Close, artist Laddie John Dill and the foundation established by painter and printmaker Sam Francis.

. . . .

Fitzgerald found the California statute conflicts with the federal copyright law. By granting artists some say in later sales of their works, the law “disrupts Congress’s efforts to balance the interests of copyright holders and downstream consumers [and] it must be pre-empted,” Fitzgerald ruled.

. . . .

California enacted its royalty act to encourage creativity by allowing artists to receive some benefit when the value of their paintings, drawing and sculptures rise, often dramatically.

It was prompted in part by the 1973 sale of a work by Robert Rauschenberg for $85,000 that the artist had sold for just $900, according to an amicus brief by California Lawyers for the Arts.

The brief notes authors, musicians and playwrights generally receive royalties whenever their works are published or performed. But visual artists who make one-of-a-kind works, such as painters and sculptors, do not.

Link to the rest at the Courthouse News Service

PG thinks everyone should read a statute once in a while. It tones the mind (but, alas, does nothing for the body).

PG has highlighted a few interesting portions of the statute. Unfortunately, this law does not apply to books and their authors, only “fine art” defined below.

California Civil Code Section 986

986. (a) Whenever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller’s agent shall pay to the artist of such work of fine art or to such artist’s agent 5 percent of the amount of such sale. The right of the artist to receive an amount equal to 5 percent of the amount of such sale may be waived only by a contract in writing providing for an amount in excess of 5 percent of the amount of such sale. An artist may assign the right to collect the royalty payment provided by this section to another individual or entity. However, the assignment shall not have the effect of creating a waiver prohibited by this subdivision.

(1) When a work of fine art is sold at an auction or by a gallery, dealer, broker, museum, or other person acting as the agent for the seller the agent shall withhold 5 percent of the amount of the sale, locate the artist and pay the artist.

(2) If the seller or agent is unable to locate and pay the artist within 90 days, an amount equal to 5 percent of the amount of the sale shall be tranferred to the Arts Council.

(3) If a seller or the seller’s agent fails to pay an artist the amount equal to 5 percent of the sale of a work of fine art by the artist or fails to transfer such amount to the Arts Council, the artist may bring an action for damages within three years after the date of sale or one year after the discovery of the sale, whichever is longer. The prevailing party in any action brought under this paragraph shall be entitled to reasonable attorney fees, in an amount as determined by the court.

(4) Moneys received by the council pursuant to this section shall be deposited in an account in the Special Deposit Fund in the State Treasury.

(5) The Arts Council shall attempt to locate any artist for whom money is received pursuant to this section. If the council is unable to locate the artist and the artist does not file a written claim for the money received by the council within seven years of the date of sale of the work of fine art, the right of the artist terminates and such money shall be transferred to the council for use in acquiring fine art pursuant to the Art in Public Buildings program set forth in Chapter 2.1 (commencing with Section 15813) of Part 10b of Division 3 of Title 2, of the Government Code.

(6) Any amounts of money held by any seller or agent for the payment of artists pursuant to this section shall be exempt from enforcement of a money judgment by the creditors of the seller or agent.

(7) Upon the death of an artist, the rights and duties created under this section shall inure to his or her heirs, legatees, or personal representative, until the 20th anniversary of the death of the artist. The provisions of this paragraph shall be applicable only with respect to an artist who dies after January 1, 1983.

(b) Subdivision (a) shall not apply to any of the following:

(1) To the initial sale of a work of fine art where legal title to such work at the time of such initial sale is vested in the artist thereof.

(2) To the resale of a work of fine art for a gross sales price of less than one thousand dollars ($1,000).

(3) Except as provided in paragraph (7) of subdivision (a), to a resale after the death of such artist.

(4) To the resale of the work of fine art for a gross sales price less than the purchase price paid by the seller.

(5) To a transfer of a work of fine art which is exchanged for one or more works of fine art or for a combination of cash, other property, and one or more works of fine art where the fair market value of the property exchanged is less than one thousand dollars ($1,000).

(6) To the resale of a work of fine art by an art dealer to a purchaser within 10 years of the initial sale of the work of fine art by the artist to an art dealer, provided all intervening resales are between art dealers.

(7) To a sale of a work of stained glass artistry where the work has been permanently attached to real property and is sold as part of the sale of the real property to which it is attached.

(c) For purposes of this section, the following terms have the following meanings:

(1) Artist means the person who creates a work of fine art and who, at the time of resale, is a citizen of the United States, or a resident of the state who has resided in the state for a minimum of two years .

(2) Fine art means an original painting, sculpture, or drawing, or an original work of art in glass.

(3) Art dealer means a person who is actively and principally engaged in or conducting the business of selling works of fine art for which business such person validly holds a sales tax permit.

(d) This section shall become operative on January 1, 1977, and shall apply to works of fine art created before and after its operative date.

(e) If any provision of this section or the application thereof to any person or circumstance is held invalid for any reason, such invalidity shall not affect any other provisions or applications of this section which can be effected, without the invalid provision or application, and to this end the provisions of this section are severable.

(f) The amendments to this section enacted during the 1981 82 Regular Session of the Legislature shall apply to transfers of works of fine art, when created before or after January 1, 1983, that occur on or after that date.

15 thoughts on “California Royalties Law Redux Lands at Ninth Circuit”

  1. It’s a disguised sales tax.
    Strip the high-minded cultural smokescreen and call it what it is and it’ll pass muster.

    California can and does tax the air that you breathe. They’re just good at disguising their taxes and forcing others to administer them.

    Things could get interesting come November if Draper’s CAL3 proposition passes. Even if it doesn’t, the county by county tally should be interesting enough.

  2. But doesn’t the artist retain the copyright on any reproductions or other use of the creative work, if not the actual physical work itself?

    I’m supportive of artists–my mother was a distinguished ceramic sculptor; the Smithsonian has two of her works in its collection–as well as being an author. So I understand about our receiving royalties and artists getting the short end of the stick. But there’s still a copyright on reproductions.

    Curious to see how all this plays out. Thanks, PG.

    • I can tell you when art is sold at science fiction conventions they all have “no rights included” on the bid sheet.

      I don’t think I’ve ever seen a piece of art without that or written into info sheet bidders have to sign before making a valid bid or sale.

  3. Hmm, so this is after the artist collected on a sale and is now trying to collect again when it’s resold?

    I’d say no, they’ve already been paid.

    This is too much like you paying a painter to paint your house and them wanting another payment just because you later sell your home …

  4. Ford Motors should get a piece of the sales price of any Ford sold on the used market. They created the cars, and they represent far more creativity than any painting.

  5. If you can’t dispose of something you bought as you see fit, then you don’t really own it. This is the sort of statute that would make me lose interest in purchasing any “fine” art.

    And if the artist thinks he deserves part of the appreciated value, will he also reimburse a portion of the purchase price if the art depreciates? After all, fair is fair.

    • Heh, we should make CA remove the word ‘sale’ and insert the word ‘lease’ and see if anybody then wants to touch that ‘art’. 😉

      When they can’t give their ‘art’ away I’m sure the smarter artists will not want to deal with resales …

  6. The joys of political logic. Don’t authors, playrights, and musicians have that negotiated in their contract the royalty payments? Now if artists think that’s unfair, shouldn’t other professions?

    If I start a business and sell it, I should get five percent of future sale prices right? What if I sell stock shares in an IPO I expect my proceeds of future sales! And don’t get me started on when I’m an engineer, architect, or construction worker and you try to sell that house we designed and built for you. Gimme gimme gimme!

    Reason 5001 never to do business in California.

    And note to self, stained glass workers need to hire better lobbyists. They got screwed out of their fair share

    • Yes, why do stained glass artists lose out when the creators of murals, mosaics, and friezes aren’t subjected to a similar exemption? Perhaps some glassworker ticked off a California congressman?

  7. Whenever a work of fine art is sold and the seller resides in California or the sale takes place in California

    For Sotheby’s, the solution is simple: close all its houses in California and hold its auctions in Las Vegas, Nevada. Meanwhile, back in the Golden State, the secondary market will dry up.

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