California's Compelled Resale Royalty on Fine Art is Ruled Unconstitutional on Sales Outside of California

The Ninth Circuit today ruled that California cannot reach outside of its borders to compel the reseller of fine art to pay 5% of the sales price to the artist.

Like the never ending pour of beer into the bottomless stein, California believes that the artist of a piece of fine art should receive 5% of the price on resale of the art -- forever; regardless of the number of times that the art is resold following the first sale, and regardless whether the art is resold outside of California.

Note that the artist was presumably paid when the fine art sold for the first time. The issue here is whether California can compel that additional royalties be paid to the artist for an undetermined number of future resales.

Cal. Civ. Code Sect. 986(a) is part of California's Resale Royalty Act. This section provides that whenever a piece of fine art is sold, the seller is required to pay 5% of the sale price to the artist. If the seller fails to do so, then the artist can sue the seller for this statutory royalty plus legal fees. This section applies by its terms even as to sales that occur wholly outside of California, provided that the artist resides in California.

The Ninth Circuit had no trouble determining that this Section 986(a) violates the dormant commerce clause and must be stricken from the statute as unconstitutional. Specifically, only Congress has the power to regulate interstate commerce, and a state does not have the authority to interfere with interstate commerce when the regulated conduct occurs entirely outside the state's boundaries. This is so even if the impact of the foreign conduct is felt within the state. This is the "dormant" commerce clause.

So, the compelled royalty on out-of-California sales of fine art is stricken and severed from the statute. Yet to be determined is whether this statute can require the payment of a compelled royalty on sales inside of California.The en banc Ninth Circuit remanded the case to the court's three judge panel to determine whether the rest of the California statute is preempted by federal copyright law.