The artist resale royalty right, what in Europe is often called the droit de suite, is a form of intellectual property right that allows primarily visual artists (who produce work in single objects or limited editions) with a right to receive a percentage of the purchase price when their works are resold. The resale royalty’s purpose is to allow artists to share in the increased value of their work over time. Each time a work is sold for a higher price than was originally paid for the work, a percentage of that sale price is required to be paid to the artist or the artist’s estate or heirs. Typically, the resale royalty falls within copyright law (and is provided for in the Berne Convention, Art. 14ter), and attempts to bring the visual artist’s rights into closer alignment with the rights of authors and recording artists, where the right to receive royalties is not cut off at the time of the original sale of a work or a copy. Although the droit de suite originated in France, it has been widely incorporated into copyright law in Europe and elsewhere. Currently, more than seventy countries provide in some measure for a resale royalty.1 However, it is not currently incorporated into U.S. copyright law. That may be changing.    

The U.S. has considered, and rejected, a resale royalty several times.2 In 1992, the U.S. Office of the Registrar of Copyrights, at the request of Congress, issued a report titled Droit de Suite: The Artist’s Resale Royalty, which concluded that it would be premature to enact such a right, since only approximately thirty countries at that time had such a right, and the impact on the art trade was unclear. Many parties in the art trade voiced concern that imposing a resale royalty would burden the trade and result in sellers shifting their sales activities to locations outside of the U.S. that did not have a resale royalty.

In December 2011, bills were introduced in both houses of Congress titled the Equity for Visual Artists Act of 2011 (the EVAA), as S.2000 and H.R. 3688, respectively. The EVAA would amend the Copyright Act to require a seller3 to pay a resale royalty of 7 percent of the purchase price on objects sold at public auction for a purchase price of at least $10,000. That royalty is to be divided between the artist and nonprofit art museums. Congress asked the Office of the Registrar of Copyrights to revisit and update its 1992 report, and in December 2013, the office issued its follow-up report titled Resale Royalties: An Updated Analysis. In its updated report, the office reversed its prior opposition to enactment of a resale royalty right and supported the EVAA.4 The report observed that “certain visual artists may operate at a disadvantage under the copyright law relative to authors of other types of creative works. Visual artists typically do not share in the long-term financial success of their works because works of visual art are produced singularly and valued for their scarcity, unlike books, films, and songs, which are produced and distributed in multiple copies to consumers. Consequently, in many, if not most instances, only the initial sale of a work of visual art inures to the benefit of the artist and it is collectors and other purchasers who reap any increase in that work’s value over time.”5 Without a resale royalty, the report noted, “the financial gains from the resale of [artists’] works inure primarily to third parties such as auction houses, collectors, and art galleries.”6

It would be incorrect to assume that artists in the U.S. entirely lack a resale royalty. One state, California, has had a resale royalty on its books since 1976. The CRRA establishes a resale royalty of 5 percent of the purchase price, but only if all of the following conditions are met: (i) the artist is a U.S. citizen or California resident for at least two years at the time of the sale; (ii) the seller is a California resident, or the sale occurs in California; (iii) the object is a work of “fine art”; (iv) the object sells for a purchase price higher than what was originally paid for it; and (v) the purchase price is at least $1,000. While the CRRA has been challenged a number of times, primarily as being preempted by the federal Copyright Act, it has, until recently, withstood those challenges.

In October 2011, several artists and their heirs filed class action complaints against Sotheby’s, Inc., Christies, Inc., alleging violation of the CRRA. The plaintiffs alleged that the auction houses had “sold works of fine art at auction but failed to pay the appropriate resale royalty provided for under the CRRA.”7 The auctions in question had been held in New York. The auction houses filed a joint motion to dismiss the complaints, and urged the court to strike down the CRRA on the grounds that the statute (i) violates the dormant Commerce Clause of the U.S. Constitution, (ii) effects a taking of private property in violation of the U.S. and California constitutions, and (iii) is preempted by the Copyright Act.

The United States District Court for the Central District of California agreed with the auction houses, holding that the CRRA violates the dormant Commerce Clause “per se,” finding that “the CCRA explicitly regulates applicable sales of fine art occurring wholly outside California.”8 The court considered whether the CCRA’s extraterritorial reach could be severed from the statute, preserving the unoffending provisions. Despite the CCRA’s inclusion of a severability provision, the court examined the statute’s legislative history, finding that the California legislature explicitly contemplated and intended for the statute to have extraterritorial reach.9 The court concluded that to sever the extraterritorial provisions of the CCRA from the remainder of the statute would result in the court impermissibly rewriting in a manner directly contrary to the legislature’s intent. “Were the court merely to sever the extraterritorial provisions of the statute,” the court reasoned, “it would create a new law that the legislature clearly never intended to create.”10M/sup> Therefore, the court concluded that that it had no choice but to strike down the entire statute.     

The artists appealed the decision to the United States Court of Appeals for the Ninth Circuit, and requested that the appeal be heard by the full panel of nine judges sitting en banc (rather than a three-judge panel, which would normally hear such an appeal). On August 29, 2014, the Ninth Circuit asked the parties to submit further briefing on whether a conflict exists among existing Ninth Circuit decisions as to the applicability of the United States Supreme Court’s holding in Healy v. Beer Inst., 491 U.S. 324 (1989), in which the Court struck down a Connecticut statute that required out-of-state beer distributors to affirm that their prices charges to Connecticut wholesalers were no higher than prices charged to wholesalers in other states, because the statute had “the impermissible practical effect of controlling commercial activity wholly outside Connecticut.”

The possible conflict that the Ninth Circuit asked the parties to brief was between its prior holdings in Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, 1101 (9th Cir. 2013)(stating that“the dormant Commerce Clause holds that any ‘statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State’s authority.’”)11 and Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris, 29 F.3d 937, 951 (9th Cir. 2013)(in which the court had held that “the [Supreme] Court has held that Healy . . . [is] not applicable to a statute that does not dictate the price of a product and does not ‘t[ie] the price of its in-state products to out-of-state prices.’”).12

The parties submitted their supplemental briefs in September 2014, and on October 30, 2014, the Ninth Circuit agreed to rehear the case en banc. Oral argument in the case has tentatively been scheduled for the week of December 15th.

>1 See id. (Noting that “Today more than seventy foreign countries – twice as many as in 1992 – have enacted a resale royalty provision of some sort to address this perceived inequality.”). up
2 See Visual Artists’ Residual Rights Act of 1978, H.R. 11403, 95th Cong. (1978); and Visual Artists Rights Amendment of 1986, S. 2796, 99th Cong. (1986). The 1986 bill was eventually enacted as the Visual Artists Rights Act of 1990 (“VARA”), but with the resale royalty provisions removed. However, VARA did direct the office to undertake a study on the feasibility of a resale royalty. That study was eventually published as the office’s 1992 report, Droit de Suite: The Artist’s Resale Royalty (the “1992 Report”), which concluded that the office was “not persuaded that sufficient economic and copyright policy justification exists to establish droit de suite in the United States.” 1992 REPORT at 149. up
3 The EVAA imposes this obligation not directly on the seller per se, but on the party responsible for collecting the “money or other consideration.” up
>4 Id. (Noting that “The Copyright Office agrees that these factors place many visual artists at a material disadvantage vis-à-vis other authors, and therefore the Office supports congressional consideration of a resale royalty right, or droit de suite, which would give artists a percentage of the amount paid for a work each time it is resold by another party.”). up
5 Id. up
6 Id. up
7 Estate of Graham v. Sotheby’s Inc.; Sam Francis Foundation v. Christie’s, Inc., Case Nos. 2:11-cv-08604-JHN-FFM (Sotheby’s), 2:11-cv-08605-JHN-FFM (Christie’s), 860 F.Supp.2d 1117 (C.D. Cal. 2012). up
8 Id. at 1124. up
9 Id. at 1226. up
10 Id. up
11 Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, 1101 (9th Cir. 2013). up
12 Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris, 29 F.3d 937, 951 (9th Cir. 2013). up