In recent weeks, two potentially important bills that would establish significant rights in favor of artists were re-introduced in the United States Congress.  One, the Artist-Museum Partnership Act, would allow artists (as well as writers, composers, and others) to receive charitable tax deductions for donations of self-created work to museums, libraries, and other qualified charitable organizations.  The other, the American Royalties Too (ART) Act, which is more controversial, would establish a federal artist’s resale royalty right, under which visual artists would receive a percentage royalty upon the resale of their work.

Artist-Museum Partnership Act

On Apr. 14th, Sen. Patrick Leahy (D-VT) introduced the Artist-Museum Partnership Act of 2015 (S. 931), which revisits an issue he has been pressing since 2000.  In his statement re-introducing the bill, Sen. Leahy explained that it “would preserve cherished art works for the public by allowing artists to take a fair market deduction for works they donate to museums, libraries, colleges and other public institutions.”

Currently, when an artist, writer, or other maker of a work (for convenience, “artist”) donates that self-created work, the artist does not receive a charitable tax deduction for the current fair market value of the work, as a collector who purchased the work and donated it would.  Instead, the artist is only entitled to receive a deduction for the value of the materials used in making the work.  This does not include the artist’s time or overhead, only the cost of the materials themselves.  Typically, the cost of materials is low, which means the charitable tax donation provides little incentive for artists to donate works.

This was not always the case.  Before 1969, when the Internal Revenue Code (“IRC”) was amended, artists were able to donate their works and receive a fair market value deduction for those donations.  Charitable gifts from artists to museums and other institutions slowed significantly after that change, shifting the economic incentives so that it was more worthwhile for an artist to either sell works or to accumulate them for later sale (often after the artist’s death).  The 1969 change has harmed not only artists, but also museums, libraries, and other organizations with limited acquisitions funds available to them.  As Sen. Leahy noted, “[t]he Artist-Museum Partnership Act would restore the law to pre-1969 and allow artists who donate their own paintings, manuscripts, compositions, or scholarly compositions to be subject to the same new rules that all taxpayers or collectors who donate such works follow.” [Id.]

The text of S. 931 is consistent with previous iterations of the Artist-Museum Partnership Act in both Senate and House versions. The fair market value deduction is made available if (i) the donated work “was created by the personal efforts of the taxpayer making such contribution no less than 18 months prior to such contribution,” (ii) the donor obtains a qualified appraisal of the fair market value, (iii) the donee organization meets IRS qualification requirements, (iv) the donated work is related to the purpose of function of the donee organization (what is commonly referred to in discussions of charitable tax donation rules as the “related use” requirement), and (v) the taxpayer receives a written confirmation statement from the donee organization.  However, the value of the deduction available to the artist in any given year is limited to the amount of the donor’s income that is earned (i) the sale or use of property created by the taxpayer of the type donated, and (ii) income from teaching, lecturing, performing or similar activity with respect to such property.

A number of prominent arts organizations have voiced their support for the Artist-Museum Partnership Act, including the Association of Art Museum Directors, the American Alliance of Museums, Americans for the Arts, the League of American Orchestras, OPERA America, Dance/USA, and the National Assembly of State Arts Agencies. S.931 is pending before the Senate Finance Committee. No hearings have been schedules on the bill.

The American Royalties Too (ART) Act

More controversial is the American Royalties Too (ART) Act, and which was re-introduced on Apr. 16th by U.S. Senators Tammy Baldwin (D-WI) and Ed Markey (D-MA), as S.977, and by Congressman Jerrold Nadler (D-NY) as H.R. 1881.  S. 977 is pending before the Senate Committee on the Judiciary, and H.R. 1881 is pending before the House Committee on the Judiciary.  No hearings have yet been scheduled on either bill. The resale right provided for in the bills would apply exclusively to works resold at auction for a purchase price of at least $5,000, and would require the auction house to collect a royalty of five percent of the purchase price, not to exceed $35,000, and to pay it to a visual artists’ copyright collecting society within 90 days after the auction.  If the auction house fails to pay the royalty, it would be subject to statutory damages for copyright infringement. Previous versions of the bill required a seven percent royalty and had no cap on the amount of the royalty. Auction houses are opposed to the resale royalty, finding it to be inappropriately and ineffectually targeted at only the slim, high-end segment of the secondary market. [See Patricia Cohen, “Lobbyists Set to Fight Royalty Bill for Artists,” The New York Times, Mar. 23, 2014]. The bill’s exclusive focus on auction sales could shift some sales away from auction to private sales, with a corresponding loss of market transparency.

As I have previously discussed, the artist resale royalty right, known as droit de suite in Europe, is an intellectual property right that allows 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 70 countries provide in some measure for a resale royalty.

In the U.S., although 31 states currently have statutes that govern the rights and obligations of artists and art dealers when artists consign their work for sale, those statutes only address the first sale of a work.  They do not provide for any royalty to be paid to the artist upon subsequent sales.  California, alone among the states, enacted a resale royalty statute, the California Resale Royalty Act (the “CRRA”)  in 1976, which requires that when a work of visual art is sold in California (or is sold in another state, but the seller is a California resident), the seller or the seller’s agent (i.e., dealer, gallery, or auction house) must pay to the artist a resale royalty of five percent of the sale price.  If the artist is no longer living, the resale royalty must be paid to the artist’s heirs or estate (but only for 20 years after the artist’s death).

In 2012, a group of artists sued several auction houses, alleging that they had sold works on behalf of California sellers and had failed to pay the resale royalty.  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.” [Estate of Graham v. Sotheby’s Inc.; Sam Francis Foundation v. Christie’s, Inc., 860 F.Supp.2d 1117 (C.D. Cal. 2012).] 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. 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.”

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). The Ninth Circuit reheard the case en banc in Dec. 2014.  That decision is pending. [For a brief discussion of the California Resale Royalty Act, see the website of the California Arts Council]

Resale royalties received public attention, famously, in 1973, when artist Robert Rauschenberg took offense at the resale of his 1958 painting “Thaw” at auction for $85,000. [See Marion Maneker, “The Famous Rauschenberg Scull Shoving Match Didn’t Go Down the Way You Think It Did,” Art Market Monitor, Sept. 2, 2013.] Collector Robert Scull had purchased the painting in the late 1950s for $900. [Roni Feinstein, “The Scull Collection,” Art in America, Jun. 4, 2010]  Rauschenberg’s objection was that Scull alone benefitted from the increase in the painting’s value brought about through the artist’s efforts and growing reputation.  Rauschenberg later asked Scull to purchase his new work at a comparable price.

An earlier effort to create a resale royalty took a contractual form, and was promoted in 1971 by conceptual art dealer Seth Siegelaub, and known as “The Artist’s Reserved Rights Transfer and Sale Agreement” (the “Artist’s Agreement”).  The Artist’s Agreement was a three-page agreement meant to be used on the first sale of an artist’s work (either by the artist via a studio sale or through the artist’s gallery or other agent), in which the buyer of the work agrees, among other things, to (i) notify the artist of any transfer of the work (including by inheritance, bequest, operation of law, or in the case of destruction of the work and payment of insurance proceeds), (ii) pay the artist a 15 percent royalty of the appreciated fair market value of the work at the time of the transfer, (iii) not allow any public exhibition of the work except with the artist’s consent, (iv) not intentionally destroy, modify, or change the work, and (v) consult with the artist on any repairs to be made to the work.  A number of the rights granted to artists in the Artist’s Agreement, particularly those moral rights (such as those concerning the integrity of the work), were later addressed by statute in the Visual Artist’s Rights Act.  Kibum Kim, co-founder and director of the NEWD Art Show, has recently advocated a reconsideration of the contractual approach to a resale royalty, writing that:

Should we be in a position to make a choice between legislation and contractual agreements, I would argue that the contract is preferable by far. In contrast to the legislative option, which pits artists and collectors against each other in antagonistic positions, contracts that collectors agree to strengthen their relationships with artists and encourage collectors to be stewards of artists’ works. Legislation only grants monetary royalties and does not cover exhibition-related rights, which, for some artists, are more important. The resale royalty being calculated off the profit made from a sale in the [Artist’s Agreement] makes it a more agreeable proposition for collectors (and is more fair) than legislative proposals, which call for royalties to be calculated off the sale price, meaning a collector would be liable even if she sells at a loss. Current proposed legislation would also ​paternalistically ​prohibit the artist from selling the rights, so that an artist could not sell future potential royalties for a lump sum in the present day, as musicians frequently do. And generally, as a flexible document, the artist can modify the terms of the contract.” [Kibum Kim, “Could a Long-Forgotten Contract Settle the Artist Resale Royalties Debate?Hyperallergic, Jan. 5, 2015.

The idea of taking a contractual approach to an artist retaining a certain amount of control over how the artist’s work may be displayed and transferred has had more prominence among conceptual artists for a number of years.  “The estate of artist Sol LeWitt,” Daniel Grant recently wrote, “has demanded that collectors who buy his works agree to seek its permission before selling to new owners . . . . Another artist, Hans Haacke, asks buyers to sign a contract agreeing to pay him a royalty of 15 percent whenever they sell his work for a profit on the secondary market. And if buyers exhibit his work in “a public venue, I want a say in the circumstances,” [Haacke] says.” [Daniel Grant, “Fine-Art Sales Often Come With Strings AttachedThe Wall Street Journal, Apr. 12, 2015]

Kim additionally points out that, under the ART Act, “‘a work of visual art’ is defined as ‘a painting, drawing, print, sculpture, or photograph, existing either in the original embodiment or in a limited edition of 200 copies or fewer.’ Under this definition, many of the works by the conceptual artists who inspired the [Artist’s Agreement] would likely not be covered by [the ART Act]. Some of the most interesting artists working today, like Ryan Trecartin and Camille Henrot, may not be either.”

A flexible, contractual approach to resale rights has a growing appeal in some art circles.  The company Level Rights, for instance, provides a platform for establishing what it terms a Negotiated Resale Right, or “NRR.” The NRR, Level Rights, explains, “allows artists to choose whether or not to participate, it enables galleries to receive a share of the resale proceeds, and, any holder may transfer the resale right for value.”

Both the Artist-Museum Partnership Act and the ART Act have been proposed and discussed for many years.  Whether the time has finally come for either bill, or whether a contractual or some other hybrid approach will prevail instead, only time will tell.