Appeals Court Deals Loss to Chuck Close and Other Artists Seeking Resale Royalties

Chuck Close - Getty - H 2018
Jason Kempin/Getty

Artists who sold major paintings or sculptures in 1977 are in luck. Other artists who sold work before or after that year not so much thanks to a ruling on Friday from the 9th Circuit Court of Appeals that essentially dooms their hopes of collecting royalties from resales.

Chuck Close and Laddie John Dill led class action lawsuits against Sotheby's and Christie's for violating the California Resale Royalties Act, which entitles artists to five percent of resale royalties under specified circumstances. California's law became effective in 1977 and echoed how many other countries recognize a droit de suite.

As 9th Circuit Judge Jay Bybee succinctly explains in today's opinion (read here), "The droit de suite protects visual artists, who face particular difficulty in capitalizing on their work. Literary and recording artists can generally profit from their efforts by controlling the reproduction of books or music. For visual artists such as painters and sculptors, however, the right to control reproduction is often not their principal source of income. Rather, it is often the sale of their original work that allows them to make a profit. The droit de suite gives these artists an economic interest in subsequent sales of their original work, thereby allowing them to capture some of its appreciation in value after the first sale."

The class action lawsuit was challenged by the auction house several ways. Previously, the 9th Circuit took up the issue of whether the law and the artists' claims ran afoul of the Commerce Clause of the U.S. Constitution. That issue ended up not stopping the lawsuit, but copyright preemption appears to be the killer.

Around the time that California was passing a law giving artists the right to collect resale royalties, the U.S. Congress was amending copyright law. Of relevance here was the retainment of the first sale doctrine, which Congress had first codified in 1909.

The first sale doctrine allows those who purchase copies of copyrighted work the right to sell that particular copy notwithstanding the interests of the copyright holder.

Bybee compares distribution rights under the Copyright Act with the California Resale Royalties Act.

"The two rights differ in that one grants artists the right to receive a percentage payment on all sales of artwork after the first, while the other grants artists the right to receive full payment on the first (and only the first) sale," he writes. "But, at root, both concern the distribution of copies of artwork and define artists’ right (or lack thereof) to payment on downstream sales of those copies."

Thus, the 9th Circuit judge sees sufficient equivalency to merit federal preemption.

"The equivalence of the two rights is further underscored by the manner in which the CRRA both expands and restricts the federal distribution right," explains the judge. "The CRRA expands the federal distribution right because, whereas the first sale doctrine limits artists’ right to payment to the first sale, the CRRA grants artists an unwaivable right to a 5% royalty on all downstream sales. Indeed, the CRRA is designed precisely to alter the first sale doctrine by affording artists a right to at least some measure of payment on every sale after the first. At the same time, the CRRA also restricts the federal distribution right by forbidding artists from fully alienating copies of their artwork. In effect, the CRRA creates an inalienable restraint on alienation."

Thus, the district court's decision in favor of Sotheby's and Christie's is affirmed except for aspect.

The decision notes that the 1909 Copyright Act contained no express preemption provision so in the year that the California Resale Royalties Act was in effect before Congress' amended copyright laws went into effect, resale royalties still apply. Bybee writes, "On remand, the district court should determine if any of plaintiffs’ claims arise between January 1, 1977, and December 31, 1977."