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"A Right Deferred: Resale Royalties For Visual Artists" by Charles Chen


A Right Deferred: Resale Royalties for Visual Artists

by Charles Chen


Introduction

Proposals for a federal resale royalty law continue to engender a great deal of controversy in the United States and to divide the art community. See e.g., H.R. Rep. No. 101-514 (discussing whether it should or not include resale royalty in VARA and it also indicates past legislative efforts before VARA was adopted). As recently as December 2011, Congress introduced a bill called Equity for Visual Artists Act of 2011 (EVAA), which would amend existing copyright law. See S.2000; H.R. 3688, 112th Cong., 1st Sess. The bill would make major auction houses with annual sales of $25 million or more to pay a 7% royalty on sales of artworks costing more than $10,000. Id. It would apply to works of living artists and works that have not entered public domain 70 years after the artist's death. Id. From the bill, half of the royalty would go to the artists and half into a federally supervised fund that would help non-profit museums. Id.

The bill's sponsors, Senator Herb Kohl (D-Wis.) and Representative Jerrold Nadler (D-N.Y.), believe this bill would help put painters, sculptors, and photographers on a more equal footing with authors, playwrights, composers, and musicians who receive royalties when their works are purchased and performed. Presently, visual artists are not paid when their works are resold. Yet the rationale behind this current bill is hardly a entirely new idea. In fact, several bills aimed at creating a royalty for visual art died in Congress in the 1980s. The question that exists now is whether a different time period and landscape on this issue of royalties for visual artists will produce a different result out of Washington, D.C.

This article will re-examine the delays and resistance in federalizing resale royalty right for visual artists. Part I describes the history of resale royalty right. Part II lays out the need to federalize resale royalties in United States and discusses solutions to implement a workable resale royalty system. Part III responds to the speculations of resale royalties as an economic sound system.

I A Brief History of Droit de Suite

The concept of resale royalty for artists began in 1920. During that year, France adopted a law that granted to artists a droit de suite - an inalienable right to hold an interest in their artwork even after they have sold their work. See Shira Perlmutter, Resale Royalties for Artists: An Analysis of the Register of Copyrights' Report, 16 Colum. VLA J.L. & Arts 395, 395 (1991-1992); see also Diane B. Schulder, Art Proceeds Act: A Study of the Droit De Suite and a Proposed Enactment for the United States, 61 NW.U.L.Rev. 19, 22 n. 13 (1966). Some commentators argue that droit de suite was a direct response to the starving artist phenomenon at the time. See generally, Mara Grumbo, Accepting Droit de Suite as an Equal and Fair Measure under Intellectual Property Law and Contemplation of its Implementation in the United States Post Passage of the EU Directive, 30 HASTINGS COMM. & ENT. L.J. 357, 360 (2008); Michael B. Reddy, Droit de Suite: Why American Fine Artists Should Have the Right to a Resale Royalty, 15 LOY. L.A. ENT. L.J. 509, 515 (1995) ("The plight of artists' heirs was given special emphasis in a widely published drawing which showed an auctioneer pounding his hammer down saying, '100,000 francs, gone!' while two children in rags sitting in the front row shouted, 'Look, one of Papa's paintings!' The fundamental unfairness of the art market middlemen reaping enormous profits while artists and their families received nothing was summed up in one account as 'real gold for the speculator, fool's gold for the artist.'").

However, a more durable rationale behind this right is the objective of equalizing the incentive for visual artists with the rights of authors and musicians who are already receiving royalties from copies of their works. See Perlmutter, at 395. In enacting the droit de suite, the legislature ensures the artist would share in some profit made by others from the resale of their work. Id. Since 1920, more than 30 countries have followed France's lead, adopting some form of droit de suite in their laws. See Copyright Office Report, at 381(identifying the thirty-six nations). In 2001, the European Union passed a directive requiring all E.U. member countries to adopt resale royalties (requiring some to do so by 2006 and some to do so by 2012). See Council Directive, at art. 12. Similarly, in the United States, this concept is not novel, for while no federal protection exists for such a right yet, the State of California enacted its own version of droit de suite in 1976. See California Resale Royalty Act of 1976, CAL. CIV. CODE § 986 (West 1982 & Supp. 2011).

II The Current Need to Federalize Resale Royalties

A. Incentive to Lead: The Internationalization of Droit de Suite

On the international front, droit de suite is viewed as an important right. See Perlmutter, at 395. Since 1948, the Berne Convention for the Protection of Literary and Artistic Works has provided nations with guidance on the principle of droit de suite for artists and other authors in original works of art and original manuscripts. In 2001, the European Community took further steps to harmonize the droit de suite laws of individual member states. See Council Directive, at 32.

The United States joined the Berne Convention on March 1, 1989. See Berne Convention Implementation Act of 1988, Pub. L. No. 100-568, 102 Stat. 2853 (1988). The following year, Congress enacted the Visual Artists' Rights Act of 1990 (hereinafter "VARA") to provide new rights of attribution and integrity to the creators of works of the visual arts and the act can link to moral rights provisions of Article 6bis of Berne. See Visual Artists Rights Act of 1990, Pub. L. No. 101-650, Title VI, 104 Stat. 5089 (1990). In the initial drafts of VARA, the act contained provisions establishing a resale royalty for artists.See Perlmutter, at 396. The proposed provisions of droit de suite proved controversial enough that Congress postponed its decision, requiring the Register of Copyrights to conduct a study examining the feasibility of implementing a resale royalty system in United States. See U.S. Copyright Off., Library of Cong., Droit de Suite: The Artist's Resale Royalty, Copyright Office Report Executive Summary (1992), reprinted in 16 Colum. VLA J.L. & Arts 381 (1991-1992) (hereinafter Copyright Office Report).

On December 1, 1992, the Copyright Office released its report to Congress and the report has five parts with an appendix and an executive summary. See Marilyn J. Kretsinger, Droit de Suite: The Artist's Right to a Resale Royalty, 15 HASTINGS COMM. & ENT. L.J. 967, 969 (1993) (Marilyn Kretsinger was the former Assistant General Counsel of the U.S. Copyright Office). Part I covered the foreign experience with droit de suite and Part II discussed the American experience. Id. Part III discussed the written comments and hearings and Part IV focused on the integration of resale royalty into U.S. law. Id. Part V provided alternative models and recommendations. Id.

The Copyright Office Report did not directly oppose resale royalties, but declined to support droit de suite because the Copyright Office had not found adequate economic or copyright policy justification to warrant adopting droit de suite in the United States. Id. at 149. Moreover, at the time, there has been resistance because the European models, before the EU directive in 2001, had varying extent of success and the effect of droit de suite on the art market is not clear. Id.; see also LIIANE DE PIERREDON-FAWCETT, THE DROIT DE SUITE IN LITERARY AND ARTISTIC PROPERTY(John M. Kornochan ed. & Louise Martin-Valianette trans. 1991).

Now that the European Union has harmonized its law among member states on the artists' resale royalty right, it is even more important for the United States to do so as well. See Council Directive 2001/84 of 27 September 2001 on the Resale for the Benefit of the Author of an Original Work of Art, 2001 O.J. (L 272) 32 (hereinafter Council Directive). Since the United States and the European Union are both major players in the art world, establishing similar laws will be beneficial to many people involved in the art market. See Katreina Eden, 18 N.Y. INT'L L. REV. 121, 152 (2005) (quoting Shira Perlmutter, Participation in the International Copyright Copyright System as a Means to Promote the Progress of Science and Useful Arts, 36 LOY. L.A. L.REV. 323, 334 (2002) (showing that the United States follows the European Union's lead in many areas but not in others, such as artist's resale royalties).

In the Copyright Office Report's own words, for "the droit de suite [to] make the transition from an idealistic notion to an international norm depends both on commitment to droit de suite and creation of practical means to implement the goal of allowing artists to share in the profit of their work once it has left their hands." See Copyright Office Report, at 382. To foster the economic interests of resale royalty for fine artists there needs to be unification among the traders to avoid negative consequences such as forum shopping and fraudulent sales. See Perlmutter, at 298 (arguing that a federal statute would prevent domestic forum shopping by art purchasers).


B. A Call for New Empirical Study: Moral Right or Economic Right, A Cause Still Worth Fighting For

In general, opponents of droit de suite base much of their contentions on the lack of economic value the resale royalty will have on the individual artist and the art market as a whole. See Jeffrey C. Wu, Art Resale Rights and the Art Resale Market: A Follow-up Study, 46 J. COPYRIGHT SOC'Y U.S.A. 531, 538 (1999) (citing John Henry Merryman, The Wrath of Robert Rauschenberg, 41 AM. J. COMP. L. 103 (1993). Proponents argue that economic-based concerns are misplaced and that droit de suite extends from a moral right - the "recognition of an artist's right to participate in the increased value of his [or her] work [and a] right to participate equally and fairly cannot be disputed [purely] on economic grounds..." See Mara Grumbo, Accepting Droit de Suite as an Equal and Fair Measure under Intellectual Property Law and Contemplation of its Implementation in the United States Post Passage of the EU Directive, 30 HASTINGS COMM. & ENT. L.J. 357, 364-366 (2008). What is true of both sides is that much of the debate on resale royalties has been in the abstract. There has been little investigation of the facts. Therefore, both sides of the debate make some overly broad assumptions about the art resale market and the effects of resale royalties.

When the Copyright Office wrote its conclusion in 1992, the report expressly stated it had little empirical evidence and that it primary used anecdotal evidence from hearings and testimonies. See Copyright Office Report, at 387. The Copyright Office cited one study of 1990-1991 auction sales at Sotheby's and Christie's which found that only 219 living artists met a $10,000 threshold for resale. Id. at 103-05. Arguably, as Professor Perlmutter points out, the two auction houses represented only a small portion of the resale market and that the $10,000 minimum excluded the vast majority of artworks. "The auction sales are the tip of the iceberg." See Perlmutter, at 303.

The most recent empirical study traces back to 1999 in Jeffrey Wu's attempted update of Tom Camp's study of secondary art market based on Sotheby auction records. See Wu, at 534; see also, Tom R. Camp, Art Resale Rights and the Art Resale Market: An Empirical Study, 28 BULL. COPYR. SOC'Y USA 146, 147 (1980). From Wu's study, his basic finding, at that time, is that secondary market for contemporary art in the United States is very small and resale royalty market highly skews towards a few established artists. See Wu, at 550. Wu reveals that empirical research on the subject is limited, especially on the subject of the U.S. market in comparison to France, since the U.S. does not have a national body collecting resale royalties. Id. at 539; see also Copyright Report, app. Part II, at 15-16 (finding one of the French collection agency had collected more than $17 million in resale royalties and distributed to more than 1700 artists in 1990 and 1600 of those artists got $5000 each, while 50 got more than $40,000). Furthermore, Wu recommends for United States to take a closer once EU harmonizes its resale royalty because there will be an increase in pressure on the United States to recognize a resale right. See Wu, at 535-536.

After almost twenty years since the report, it is important for the Copyright Office to do a follow up study on resale royalty in part from international pressures and in part to follow through its own suggestions. A new study containing more empirical evidence would not necessary say resale royalty is not worth the time, rather the Copyright Office may actually find that after almost two decades there is an abundance of new data that was not there before showing droit de suite is beneficial to artists. Perhaps new data about the missed opportunities for artists to create other works of art due to lack of compensation on art sales could be a significant factor as well.

C. Redefining Feasibility: Making Resale Royalties Work in the United States

While the Copyright Office Report did not create a federal resale right in 1992, it did suggest a number of alternatives to the resale right and drafted a model droit de suite, stating that a different conclusion might be in order if the European Community were to harmonize its members' droit de suite. Since we now know that the EU passed its 2001 directive to harmonize its members on droit de suite, it is time to re-evaluate the proposed alternatives.

First, the Copyright Office Report offered alternatives to a resale royalty such as: (1) a broader public display right, returning to the artist greater control over the right to display the work publicly; (2) a commercial rental right, giving the artist control over commercial rentals of the work, even after its sale; (3) compulsory licensing, requiring payment of a fee to the artist, not for the permission, but for public displays of the work; and (4) increased governmental funding for the arts, through either federal grants or the purchase of artworks for federal buildings. See Copyright Office Report, at 149-51. According to Professor Perlmutter, these proposals are no substitute for a resale royalty even if they may be beneficial in itself it does not have the advantages of a resale royalty. See Perlmutter, at 419-421.

As some proponents of resale royalty notes the most workable alternative from the Copyright Office Report is the proposed model legislation, which sets a 3-5% inalienable resale right on certain fine arts. Id. at 421. It would initially start with public auction and there would not be a minimum threshold. It would last fifty years past the death of the artist, and U.S. and foreign artists whose home countries had reciprocal arrangements would be eligible. Lastly, private collecting societies would handle the logistics of collection and payment.

Here, the features of the model incorporate at least some sense of fairness and practical solutions to overcome the difficulties of administration. Id. at 422 (finding the royalty based on total sales price method used by other countries strongly show it is the best practical solution). To update the model legislation using this model, the resale right should last 70 years to be consistent with current copyright law. On the other hand, an opponent to droit de suite would argue that such a resale royalty model merely establishes a governmental standard for fine art. See Neil F. Siegel, The Resale Royalty Provisions of the Visual Artists Rights Act: Their History and Theory, 93 DICK. L. REV. 1, 21 (1998). From Professor Perlmutter's view, resale royalty should limit to single object or very few copies because there must be an incentive to produce works to be resold, which is consistent under U.S. copyright law as defined in VARA. See Perlmutter, at 423; see also Copyright Office Report, at 390 (finding that the usefulness of the royalty depends on the creation of the type of art that Congress wants to encourage).

In contrast, French law covers all "graphic and 3D works," but requires a $100 threshold sales price for the law to apply. See Eliza Hall, The French Exception: Why the Resale Royalty Works in France and Why it Matters to the U.S., 1 J. INT'L MEDIA & ENT. L. 321, 330 (2001)(citing IPC art. L122-8, where the right is for "les auteurs d'oeuvres graphiques et plastiques"). Proponents have been suggesting Congress should look further into using France for template since it is the oldest and most effective resale royalty system in the world. Id. Moreover, because the Copyright Office Report stated it is unsure what to draw from the California resale royalty experience since the California resale right had not been fully realized at the time. See Emily Eschenbach Barker, The California Resale Royalty Act: Droit de [Not So] Suite, 38 HASTINGS CONST. L.Q. 387, 388 (2011) (criticizing California's lack of central collection mechanism and its difference from European resale royalties). Thus, arguably, it is better for United States to follow carefully why France has been so successful in implementing resale royalties. See Copyright Office Report, at 389. As one commentator observed, the reason France has succeeded where California has not lies in the fact that France has embraced the royalty into a preexisting infrastructure of artists' collection societies and well-regulated public auctions. See Hall, at 330.

In all, besides the wait-and-see approach for EU to harmonize resale royalty, from the Copyright Office's own suggestion, Congress can revisit the issue after five years of experience with the resale system. See Perlmutter, at 422.

III Overcoming the Speculation to Develop Federal Resale Royalty Rights

In essence, the opponents on resale royalty consistently argue three general economic concerns, which are: (1) droit de suite benefits only a minority of artists; (2) a resale royalty right would harm the primary market for contemporary art; and (3) the system would be difficult to administer effectively. Proponents of resale royalty have put forth persuasive (if not equally sound) arguments countering the opponents' economic-based points.

In response to the first argument, the amount of effort to enforce the collection process is worth the small percentage of artists. The resale royalty right for an artist is similar to royalty rights for an author under copyright law - the kind of royalties that create incentives for authors for creating popular works. See Eden, at 147 (citing Thomas M. Goetzl, In Support of the Resale Royalty, 7 CARDOZO ARTS & ENT. L.J. 249, 258 (1989) (recognizing that successful artists will benefit more from a resale royalty right than unsuccessful ones); see also Perlmutter, at 305-06 (noting that in a capitalist system, some artists invariably will reap more benefits from resale royalties than others). It is inevitable that artists who are more successful will benefit more from a resale royalty. Id. Even small resale royalties can be beneficial to artists because it can help new artists to focus on creating rather than on mere survival. See Perlmutter, at 305. In a way, the resale royalty is consistent with American legal traditions because it also focuses on promoting creativity - "the progress of Science and the useful Arts." See U.S. CONST. art. I. §8, cl. 8; see also Perlmutter, at 424 (arguing that artists would feel even small amounts paid occasionally are worthwhile both psychologically and financially). Hence, resale royalties actually help people than the artists who directly benefit from them.

Furthermore, a resale royalty right does not depress the art markets rather federal resale royalty legislation could equalize the international art market. Currently, resale royalties in European nations have not seen dramatic depression of the market. See Jennifer Wirsching, The Time is Now: The Need For Federal Resale Royalty Legislation in light of the European Union Directive, 35 SW. U. L. REV. 431, 447 (2006). For one, the cost of resale royalties is dispersed across multiple parties meaning it is not just dealers or auction houses, but to sellers and buyers in the form of commissions. Id. at 449. Also, the proposed 3 to 5% is small enough to be absorbed into the cost of transactions. See Perlmutter, at 424; Eden, at 149-51 (finding countries like France, Germany, Belgium, which have droit de suite longer than any country continue to report a steady increase in resale royalties and no decrease in price of first sales). Hence, resale royalties likely would not damage the primary art market.

Lastly, resale royalty systems have worked elsewhere, and will be manageable if structured well. The Copyright Office's proposed model should work effectively. See Perlmutter, at 425. A new empirical study will likely show how nations that have adopted droit de suite have overcome these economic speculations.

Conclusion

The United States has put off implementing a resale royalty for years, and federalizing resale royalty would help the United States comply with the International Berne Convention and continue dominating the international art market. As one commentator suggests, "[resale royalty] rights advocacy should not stop, but it should be tempered with pragmatism." See Edward J. Damich, Moral Rights Protection and Resale Royalties for Visual Art in the United States: Development and Current Status, 12 CARDOZO ARTS & ENT. L.J. 387, 407 (1994). Here, the United States has not taken the lead in the case of resale royalties in much the same way it delayed in adopting moral rights. See id. at 406. However, in analogy to how United States adopted VARA, United States will likely in the future accept resale royalties in order to align with the other developed countries. Id.

In other words, the issue is not whether the U.S. should adopt an intellectual property concept from a foreign legal system, but whether we should continue evolving in the same direction that we and Europe have been going in since the early twentieth century. The world awaits Congress to take up the Copyright Office's invitation to reexamine the facts for resale royalty system since there is a convincing case for the enactment of a federal resale royalty right.

Charles Chen is a third-year student at University of New Hampshire School of Law (also known as Franklin Pierce Law Center). Interested in the field of Intellectual Property, he interned last summer at the U.S. Copyright Office in Washington, D.C. Currently, he is completing his J.D./LL.M in IP.

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