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    Split Opinions on Sharing Profits

    Debate on artist resale rights in U.S. heats up amid legal wrangling

    Mark Grotjahn's Untitled (Blue Face Grotjahn), 2005, oil on linen. The artist sued a collector who resold his work and did not pay resale royalties.

    COURTESY OF THE ARTIST AND BLUM & POE, LOS ANGELES, CA

    NEW YORK—The intensifying debate over artist resale rights in the U.S. just moved up a notch.
    Many art world observers were surprised to learn that high-profile, Los Angeles art collector Dean Valentine agreed to pay resale royalties to artist Mark Grotjahn in order to settle a lawsuit.

    Grotjahn, whose paintings have brought upwards of $1 million at auction, sued Valentine in early 2010, after the collector resold several of Grotjahn’s works at a profit without remitting California’s state-mandated five percent royalty, according to court papers.

    Under the terms of the California Resale Royalty Act (CRRA), an artist is entitled to five percent of the amount of a sale whenever a work of fine art is resold and either the seller resides in California or the sale takes place in California.

    After months of legal wrangling, during which the case was shifted from state to federal court, and then ultimately remanded back to state court, Valentine agreed to pay the royalties, plus interest, as well as a portion of the attorney fees incurred by Grotjahn. The settlement amount totaled just over $150,000. Of this, roughly $70,000 was allocated to address royalty fees while approximately $85,000 was for Grotjahn’s legal fees.

    The settlement marks a major development in the long running debate over artist resale rights in the U.S., particularly since Sotheby’s and Christie’s are currently defending class action suits brought against them in California for the same issue.

    Last month, the auction houses responded to the suits by filing a joint motion to dismiss the cases. They outline—at length—the reasons why they view the application of the CRRA as interfering with United States interstate and foreign commerce regulations.

    The auction houses point out that the CRRA is “preempted by the Copyright Act of 1976” under which Congress had “the express objective of creating national, uniform copyright law by broadly pre-empting state statutory and common-law copyright regulation.”

    Online auctioneer eBay was also sued. It too has filed a separate motion to dismiss the claims, citing these same constitutional issues while also pointing out differences in the way it conducts business—solely as an online auction platform as opposed to an actual-sale agent.

    The class action suits were filed in U.S. district court in central California by a group of artists and estates, including the Sam Francis Foundation, the estate of Robert Graham and artists Chuck Close and Laddie John Dill. According to the court records, the claims “target the willful and systematic violation,” by the respective defendants, of their California-law obligation “to pay royalties to U.S. artists and their estates on artworks sold either in California or at auction by California sellers.” The claims seek the unspecified amount of “all royalties due, but not paid,” interest on those royalties and punitive damages.

    According to the complaint, the “custom and practice [of the defendants] is to conceal the fact of a seller’s California residency, or the fact that the sale took place in California.”

    Sotheby’s and Christie’s take the position that the CRRA is “unconstitutional, and therefore unenforceable, because it violates the Commerce Clause of the U.S. Constitution…[it] effects a per se taking of private property in violation of the U.S. and California constitutions.”

    The response further notes,“the Copyright Act of 1976 both expressly and impliedly preempts the CRRA.”

    According to court papers, “specifically, the ‘first sale’ provision of the Copyright Act entitles a lawful owner of a copyrighted work to resell that work without restriction by, or payment to, the creator.”

    Further, Sotheby’s and Christie’s say the plaintiffs “failed to sufficiently plead their claims, notably, the existence of timely sales allegedly subject to CRRA.”

    According to Eric George, the Los Angeles-based attorney representing the plaintiffs, the point of the suit is “to have the same compliance with the resale royalty that exists in Europe.”

    Addressing the recent response from the houses, George told ARTnewsletter: “We have reviewed all of their legal arguments and don’t find any compelling argument why California’s 35-year-old law should now be deemed unconstitutional.” George said he intends to file a formal response to dismiss the joint motion.

    In its own motion to dismiss, eBay says that its online marketplace is “in many ways the Internet equivalent of the classified advertisement section of a newspaper, providing an online venue where buyers and sellers can find each other and engage in transactions directly….eBay does not become an agent of either the seller or the buyer.” The company further points to language in its user agreement, stipulating, “You acknowledge that we are not a traditional auctioneer….We are not involved in the actual transaction….”

    The response further states that the complaint “fails to identify a single sale of fine art for which plaintiffs contend that they (or any class members) are entitled to a payment.”

    Collection of the resale royalty, called droit de suite, is standard throughout the European Union and in many European countries, though it did encounter considerable resistance from British dealers before it finally went into effect in 2006. Droit de suite in Europe is administered on a sliding scale and capped at €12,500 ($19,780). As of the start of this year, in the United Kingdom, the fee was applied to the resale of works by deceased European artists (it already applies to living artists), bringing the U.K. in line with the rest of the EU. Sotheby’s and Christie’s abide by the European droit de suite in the respective regions.

    Similar to the arguments of European dealers and auction experts who oppose the EU droit de suite, Christie’s and Sotheby’s say that the CRRA will have a negative impact on the art market in California. “The CRRA increases the cost of art and slows sales….Given that no other state imposes such an obligation, there is a substantial disincentive—resident or not—to sell art in California.”

    According to a statement from Sotheby’s: “We believe that we have meaningful defenses to the claims asserted and they will be vigorously defended.”

    According to Christie’s statement, “Christie’s views the California Resale Royalties Act as subject to serious legal challenges and we look forward to addressing these issues in court.”