Battle Heats Up Over Resale Royalties for Artists


Federal legislation that has been in the works for years and could dramatically impact artists’ incomes and art dealers’ profits recently received a public hearing in Washington, D.C., and appears destined for reintroduction in Congress perhaps as early as this session.

The U.S. Copyright Office is expected to issue a report in the coming months on a proposed bill that would require resellers of art, including auction houses, to pass on a portion of the profits to the artworks’ creators. At the Apr. 23 hearing, congressman Jerrold Nadler of New York vowed to re-introduce his stalled house bill, originally put forward in 2011, which he said addressed a “serious lack of equity [in] the distribution of revenue generated by sales and resales of works of art.” In its current form, the bill “would set aside a royalty rate of 7% for resales over $10,000 at large auction houses, half of which would go to the artists, and half to nonprofit art museums,” Nadler said.

At the same time, a federal appellate court in California is preparing to decide later this year whether California’s Resale Royalty Act, the only statute of its kind in the U.S., stands up to constitutional scrutiny. Sotheby’s, Christie’s and eBay persuaded a trial court last year that the 5 percent resale royalty imposed by the California measure was unconstitutional in that it impermissibly interfered with interstate commerce. Chuck Close, Laddie John Dill and the estate of Robert Graham, among others, brought the litigation, seeking from the auction houses what is typically confidential information about the identities and locations of sellers. This would allow the artists to sue those who had violated the Resale Royalties Act. They’ve appealed the finding of unconstitutionality. Two nonprofit groups, California Lawyers for the Arts and the Artists Rights Society, recently filed amicus briefs in support of the artists. Sotheby’s, Christies and Ebay had been due to respond last Friday, but received an extension until July 3. Ira Bibbero, one of the lawyers for the class, said an oral argument will likely be presented this fall, and a decision by the appellate court should follow shortly thereafter.

At issue in both the California litigation and the proposed federal legislation is whether and how much artists should share in the spoils when art increases in value, leading to profitable secondary sales. Congressman Nadler’s “Equity for Visual Artists Act of 2011,” which has languished since its senate sponsor, Herb Kohl (D.-Wisc.) retired last year, would have introduced into federal law the French-derived droit de suite, a concept that is widely accepted and enforced in Europe, where auction houses are required to collect and distribute royalties to artists. The act died in committee, but Ilan Kayatsky, Congressman Nadler’s communications director, confirmed to A.i.A. by telephone last week that Nadler plans to resuscitate the bill soon.

Meanwhile, having survived several constitutional challenges in the 36 years since its enactment, California’s vanguard Resale Royalties Act is now under attack. The Act requires that when a work of “fine art” is sold either in California or by a California resident outside of California, the seller or his agent must withhold from the seller’s portion “5 percent of the amount of such sale” and distribute it to the artwork’s creator. If the seller can’t locate the artist within 90 days, he or she must send the artist’s portion to the California Arts Council (CAC), which is charged with then locating the artist. Exceptions are written into the Act, including variances for very small sales and resale at a loss; and “fine art” is specifically and conservatively delimited to exclude photography, film and performance work. Only “original painting, sculpture, drawing or an original work of glass” is covered.

Enforcement of the California law has proven complicated. According to Patricia Milich, administrative coordinator of the act at the CAC, the biggest problem is lack of transparency in the art market. “There’s no central registration database of any sort about which art is sold by whom. In essence, the act is adhered to on an honor system basis.” Milich told A.i.A. by phone late last week that, in total, the CAC has distributed $340,000 in royalties via 664 disbursements to 430 artists (some of whom received more than one).  The average royalty is $450. The largest was $16,000, although there have also been several $50 payments. (Milich said that the CAC is not at liberty to disclose the recipients of these payments.)

Although the Resale Royalty Act remains on the books, it’s a law in limbo, with galleries and auction houses unsure what their withholding responsibilities are while they await final word from an appellate court. Because the determination of unconstitutionality was made by a trial court, “it is only binding on the parties to the lawsuit,” said New York art lawyer Donn Zaretsky in a telephone interview last week. However, Milich said that the CAC is “not doing anything to administer the act right now.” Nonetheless, she said resellers today “are obligated” under the statute’s terms. A statement on the California Arts Council’s website says that it awaits guidance from the Ninth Circuit Court of Appeals, and advises affected parties to “seek counsel.”

Sellers, galleries and auction houses are generally averse to resale royalties because they add administrative costs and cut into profits. However, California Lawyers for the Arts (C.L.A.) claims in its amicus filing to represent “art dealers who support the CRRA and take pride in paying resale royalties to artists.” In their filing to the U.S. Copyright Office last October, Sotheby’s and Christie’s, for their part, jointly argued that a federal resale royalty requirement would “give a windfall to already successful artists and their heirs, would do nothing to help struggling artists or incentivize the creation of new works, and would likely drive art sales offshore or into the private market.” They claim “visual artists are able to fully capture the value of their work at the time of the first sale.”

Artists typically favor resale royalties, which permit them to share in the reward that savvy or lucky sellers reap after taking a risk on under-appreciated artists whose values increase over time. Robert Rauschenberg was a vocal supporter of resale royalty laws, as C.L.A. points out in its brief. In a famous 1973 outburst, Rauschenberg lashed out at taxi mogul Robert Scull after watching a Sotheby Parke Bernet auction in New York at which Scull sold Rauschenberg’s Thaw for $85,000, having paid $900 for the piece 15 years earlier. That night Rauschenberg is said to have shoved Scull and said, “I’ve been working my ass off for you to make that profit!”