The New York Times has an article reporting on three class action lawsuits based upon the California Resale Royalty Act, which name as defendants the well-known auction houses Sothebys and Christies, as well as eBay. Separately, the Los Angeles Times reports that the California law is also the basis for class action lawsuits against nine California art galleries, variously located in Los Angeles and San Francisco. The California Resale Royalty Act, uniquely within the U.S., entitles artists to a resale royalty of five percent on sales of fine art in California, or by persons who have been California residents for at least two years, when the the gross resale price is equal to or greater than $1000. The California Arts Council provides some of the details about how the law works in practice. Questions that have lurked for years regarding whether the California law can coexist with the federal Copyright Act, as well as whether it violates the Constitution, are sure to come to the fore as the litigation in these cases runs its course.
The immediate impetus for passage of the California Resale Royalty Act was a 1973 New York auction in which taxi baron Robert Scull sold a painting that he had acquired for $900 fifteen years prior for $85,000–a handsome profit indeed, but one which drew the fierce ire of Robert Rauschenberg, the painter that produced the work. An engraged Rauschenberg, upon seeing his 1958 painting “Thaw” sell for this rather large sum, without any of the proceeds going to him, reportedly shoved Scull following the close of the auction and declared that he had not invested so much hard work into his painting “just for you to make that profit.” He believed that, as a matter of basic fairness, that as the artist he was entitled to a portion of the auction proceeds. In California, the legislature agreed with Rauschenberg’s sentiment and enacted the law at issue in the current class action cases. It was signed by governor Jerry Brown in 1976, with Rauschenberg appearing at the signing ceremony, and went into effect in 1977.
California’s law is in keeping with the philosophical concept of artist’ moral rights, or “droit de suitel,” as they would say in France. One tenet of moral rights laws is that authors should be able to exercise a degree of control over how their artwork, even following the initial sale. In comparison to continental Europe, the U.S. has never been firmly committed to the basic ideas of moral rights in copyright law. Although Congress passed a law in 1990 entitled the Visual Artists Rights Act of 1990 (VARA) that gives artists certain moral rights to proper attribution and protects the integrity of their original work, neither Congress or any state other than California has seen fit to mandate resale royalty payments. In France, legislation giving artists royalties in resales was enacted in 1920. Apparently, the law was inspired by sympathy for the plight of the painter Millet’s granddaughter, who was selling flowers on the street at the time one of Millet’s paintings sold for one million francs. The UK changed its laws in 2005 to give artists royalties from resales. It is interesting to note that in the UK, art dealers and auction houses made the argument that art sales would simply shift to Switzerland and the U.S., given the absence (with the exception of California’s law) of mandatory resale laws in either country.
While there is not a great deal of case law on the validity of California’s law, as noted by the Los Angeles Times, this is not the first time that the enforceability of the law has been at issue. More specifically, in 1977, a legal action brought by Los Angeles art dealer Howard Morseburg argued that the law was unconstitutional. Morseburg argued that the law was preempted by the 1909 Copyright Act. In addition, he argued that it violated the Constitution’s Contract Clause, because the state was interfering with his ability to freely negotiate contracts, and violated the due process clause by depriving him of a fundamental property right. The District Court ruled against Morseburg and the case went up to the Ninth Circuit, which also rejected Morseburg’s arguments that the statute was invalid. The Court ruled that any interference with Morseburg’s right to contract was based in legislation that “serves a public purpose and is not severe.” It found that the California legislature had a rational basis to pass legislation designed to support artists and fairly quickly rejected the argument that the law violated the due process clause.
Of potentially critical importance with respect to the current round of class action lawsuits, at the time when Morseburg filed his test case, the federal Copyright Act of 1976 had not yet gone into effect; it passed in 1976, but went into effect in 1978. There is a major, unresolved legal issue as to whether the Copyright Act preempts the California Resale Royalty Act, since Congress in passing the Copyright Act expressly stated that it was occupying the field and insofar as state laws regulate the same subject matter, it is the Copyright Act, and not the state laws, which are applicable. In the lawsuits described above, the defendants can be expected to argue that the Copyright Act’s first sale doctrine preempts the legislative scheme in California. In addition, they may attempt to argue that the California law is unconstitutional as a Fifth Amendment taking of property without compensation, an issue raised in academic writing on the California Resale Royalty Act.
Copyright preemption cases can be quite tricky. Section 301 of the Copyright Act contains the preemption language of the Copyright Act. Section 301(a) provides:
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
Reviewing courts have typically required state laws to have an extra element that goes beyond the exclusive rights set forth in the Copyright Act before finding that the laws survive preemption. But applying this test has created some sharp differences of opinion on the preemption question, with a good example being the Ninth Circuit’s decision in the recent case Montz v. Pilgrim Films & Television, Inc. I have previously blogged about the preemption issue that the Ninth Circuit faced in that case.
One argument for preemption is based on the interaction between Sections 106 and 109 of the Copyright Act. Section 106 of the Copyright Act gives the copyright holder an exclusive right of initial distribution, but makes clear–by stating that the exclusive rights granted in Section 106 are subject to Sections 107-122–that this exclusive right can only be understood in conjunction with the first sale exception in Section 109. Section 109(a) provides in relevant part:
Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.
The auction houses will no doubt argue that their business model is based upon the copyright law’s first sale doctrine, and that the California law interferes with the careful balance struck by the Copyright Act. Because the exclusive right to distribute the copyrighted work is not unlimited, as Section 109(a) creates an important exception, the argument goes that it regulates an area that is well within the subject matter of the Copyright Act. On the other side, California will argue that the law is fully consistent with the Copyright Act because it does not bar resales of works, nor does it empower copyright holders to bar resale of works or bargain for the terms of resale. Rather, from California’s perspective it is better thought of as state regulation of private contracts. While courts have held that contractual terms in end user agreements are enforceable and are not preempted by the Copyright Act, they may view a state regulation of contracts that overlaps with the Copyright Act as being more vulnerable to a preemption challenge.
There is yet another preemption issue that may be raised in the class action lawsuits concerning the California Resale Royalty Act. This is whether Section 106A, which contains the text of the Visual Artists Right Act of 1990, preempts state laws, such as that of California, which address moral rights. Section 301(f)(1) provides:
On or after the effective date set forth in section 610(a) of the Visual Artists Rights Act of 1990, all legal or equitable rights that are equivalent to any of the rights conferred by section 106A with respect to works of visual art to which the rights conferred by section 106A apply are governed exclusively by section 106A and section 113(d) and the provisions of this title relating to such sections. Thereafter, no person is entitled to any such right or equivalent right in any work of visual art under the common law or statutes of any State.
While this issue may come up in the litigation, I do not think the preemption argument here is persuasive. VARA, as noted above, addresses artists’ rights to attribution and the integrity of their work, but does not have anything to say about other aspects of “droit de suite.” I find it hard to believe that California’s creation of a right to royalties from resales of artwork is “equivalent” to any of the rights that VARA bestows upon visual artists.
The takings clause issue is another legal issue that is likely to feature in the class action lawsuits brought under the California Resale Royalty Act. Emily Eschenbach Barker addresses this issue in a recent article entitled “The California Resale Royalty Act: Droit de (not so) suite,” 38 Hastings Const. L. Q. 387 (Winter 2011). The question is whether, in enacting legislation that mandates that a five percent royalty rate be paid to visual artists from the resale of their artwork the state is taking property without just compensation, in violation of the Constitution. My own intuition, without having fully researched this issue, is that courts are unlikely to find this is an unconstitutional taking under various precedents in the field of regulatory takings law.
To be sure, the class action lawsuits regarding the California Resale Royalty Act raise some interesting legal questions. I’ll keep my eyes open for future developments.