Tuesday, December 27, 2011

Resale of Artwork May Yield New Fees to Original Artists

Last week, Congressman Jerrold Nadler from New York and Senator Herb Kohl of Wisconsin introduced into the House and Senate proposed legislation that would effectively tax the resale of valuable works of visual arts (consisting of original and limited edition photographs, paintings, drawings, prints and sculpture), and harm the business of large auction houses, including Sotheby's and Christies. A copy of the jointly introduced bill is set out here. The proposed legislation would compel the payment of 7% of the sale price of visual art sold at auction following the first sale by the original artist, provided that the art sells at auction for at least $10,000, and provided that the auction house sold at auction during the previous year more than $25 million of visual art. Failure to pay the 7% would permit the copyright owner to sue for infringement and recover statutory damages up to $150,000. The fee would be payable to an artist agency with authority to pay a portion of the collected fee to the original artist, or the artist's estate, and a portion to non-profit art museums to help fund purchases of works of visual art.

This proposed legislation borrows from the European concept of droit de suite which permits a form of resale fee to the original artist. It also borrows from a similar California statute that authorizes resale royalties of art auction sales made in California (the California art resale fee is only 5%). Here is the link for the Resale Royalty Act, Cal. Civil Code §986.

It seems to me that there are some issues to be considered with the proposed legislation:

1. Since failure to pay the 7% resale fee subjects the auction house to an infringement claim, the auction house can perhaps avoid paying the fee if it has no concerns about being sued for infringement. This would be the case if the original artist waived or assigned the copyright interest in the visual art to the first purchaser, and if the waiver or copyright interest is transferred as part of each further resale of the art. In this case, there would not be a likely plaintiff with standing to bring an infringement lawsuit if the 7% is not paid. Indeed, and particularly as to lesser known artists, this proposed legislation may encourage auction houses to obtain a "compulsory" assignment of an artist's copyright interest as part of the first sale of the artwork.

2. The owner of a valuable work of visual art can avoid the 7% tariff by auctioning the work at a small auction house with preceding year sales of less than $25 million. Indeed, this legislation may encourage the development of a greater number of small auction houses specializing in a few high value pieces. One potential problem, though, is that the smaller auction houses may not generate sufficient revenue to pay for errors and omission insurance covering the risks associated with the evaluation, valuation and transfer of valuable high-end art.

3. One portion of the proposed legislation provides that visual art would not be subject to the copyright notice provisions of Section 401 of the Copyright Act. Section 401 as presently written does two things. First, it provides that a copyright notice is discretionary, not mandatory (although, prior to 1989, copyright notice was mandatory). Second, Section 401(d) provides that if the copyright notice is employed then an infringer's evidence of innocence shall be given no weight in an infringement trial. So, for new works created after 1989, the use of a copyright notice makes practical litigation sense in order to receive the evidentiary benefit of Section 401(d). Avoiding this evidentiary benefit makes no sense.

4. The task of keeping track of artists and their heirs may be difficult. The Copyright Office, copyright lawyers and copyright users have collectively encountered considerable difficulty with "orphan works." The lack of an obligation under these new bills to compel the filing of contact information for visual art artists will almost certainly cause the loss of resale payments that may come due to original artists or heirs, who may have long forgotten about a lost piece of art.

No progress has yet been made to these new bills and, given the election uproar expected in 2012, it is not completely clear how well these new bills will advance. Of further note, the artist community has not yet joined together to provide a unifying voice in favor of these bills. We will see how all this works out.

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