California and Droit de Suite

The Art Newspaper takes a look at the California Resale Royalty Act of 1976, how it is applied and the result of recent court decisions. The Art Newspaper believes it is important to look at the California act and assess its requirements and compliance as a current bill in the US Congress, the Equity for Visual Artists Act of 2011 advances.

The Art Newspaper reports

It’s not surprising that the history of resale royalty legislation in the US began with an auction and an altercation. The fight took place in 1973 outside the Sotheby Parke-Bernet auction house. Taxi mogul Robert Scull had just sold off many works of art at historic prices. For example, Robert Rauschenberg’s Thaw, which Scull had bought for $900 some 15 years earlier, made $85,000 on the night. Rauschenberg confronted Scull after the sale: “I’ve been working my ass off just for you to make that profit.”
Rauschenberg then lobbied Congress to pass a bill that would compensate artists when their work is resold. When that didn’t happen, the artist supported a state bill in California that did become law. The California Resale Royalty Act of 1976 gives artists a 5% royalty on resales of their works when transactions of $1,000 or above take place in the state or the seller is a resident of California.

Today the debate over a national droit de suite in the US is back, as New York congressman Jerrold Nadler is advancing a revised version of his Equity for Visual Artists Act of 2011, which failed to become law first time around.

When supporters of resale royalties in the US seek to advance their arguments, they usually look to other countries for supporting evidence—starting with France, which originated droit de suite in 1920 and now works on the EU model of a sliding scale up to 4%, capped at €12,500. They tend to overlook the California act.

There’s a reason why: for decades this law has been misunderstood and unevenly enforced. And now its very constitutionality is in doubt. Last year a federal judge dismissed lawsuits brought by the estate of Robert Graham, Chuck Close and other artists against Christie’s, Sotheby’s and eBay on the grounds that the California law violated the US Constitution by attempting to let one state regulate commerce in others.

Still, as the only droit de suite in the US, the California statute has served as a test case. It should also serve as a cautionary tale for politicians considering the new Equity for Visual Artists bill, who would do well to learn from its mistakes.

Apply the resale royalty law to all sellers equally

A leading argument against the California law, however difficult to prove, is that it has had a chilling effect on the art market in the state, driving transactions to New York or elsewhere. Most notably, the auction houses point out that Sotheby’s stopped holding sales in Los Angeles after the law was enacted.

Of course, that geographic issue would be solved by national legislation, but the larger argument that a national droit de suite in the US would send some business out of the country deserves consideration. And given Nadler’s statements that the new bill will only apply to auction houses, there’s a related risk—of driving transactions away from the auction houses and into private backrooms.

A new law might also drive sales online. Ebay, for example, has already succeeded in various court cases in defining itself not as a seller of goods but “a platform” for selling akin to newspaper classified ads. If the courts continue to buy this, then eBay and its online counterparts will have a clear advantage over more traditional auction houses such as Christie’s and Sotheby’s, in effect penalising the businesses that attempt to vet material for quality and handle the exchange of property and money.

The collector Dean Valentine, who was sued by the painter Mark Grotjahn for royalties, called the California act “discriminatory”. Let’s make sure the federal one isn’t.

Take the cue of artists when attempting to define “fine” or “visual” art

The California statute defines “fine art” as “an original painting, sculpture, or drawing, or an original work of art in glass”, excluding stained glass that is sold as part of a building. The exclusion suggests that the legislators who drafted this bill began to think about the different forms art could take, but they didn’t think hard enough.

They either overlooked or decided against including collage and assemblage, not to mention new or newly sanctioned art forms emerging around that time, such as photography and video art. So Grotjahn gets royalties as a painter but video artist Diana Thater doesn’t? John Baldessari gets fees for canvases executed by hired sign painters but not for his photo-collages? And where would installations fit in?

Nobody expects legislators to be prophets, but they can try to follow the lead of artists today who go well beyond canvas, clay and charcoal. Decent legislative models come from Spain, which includes video art, and Hungary, which provides a long (but purposefully not exhaustive) list of different artistic media.

Don’t let royalties eat up resale profits

California’s legislators were wise and also kind enough to specify that a royalty applies only in cases where the resale price exceeds the original purchase price, unlike European countries where a royalty is levied even on a work selling at a loss. But their decision to use the gross sale price as the basis for calculating the artist’s cut is unfair. To take an extreme example, a work of art bought for $950 and resold for $1,000 would be subject to a royalty of $50—so that every cent of the profit would go to the artist.

Even if you love the idea of droit de suite, shouldn’t buyers who assume the financial risk and carrying costs of acquiring works of art reap some reward when they sell at a profit? The two most obvious solutions: either apply the royalty to the gross profit or else add a condition to the law that the royalty never exceed, for example, 50% of the gross profit.

Don’t entrust the distribution of royalties to a government agency—especially one with an incentive to hold on to funds

That is essentially what the California Act has done, by giving the California Arts Council a key administrative role. The statute says that if a seller is unable to locate and pay the artist, they should pay the California Arts Council instead, with the money to be deposited in a “special deposit fund” in the state treasury.

The council has distributed only $256,144 in royalties to 319 artists up to 2012. Its website now has a most-wanted list, asking the public for help in locating 40 artists. Some are surprisingly prominent figures with established galleries, such as Frederick Hammersley, Jonas Wood, Raymond Pettibon, Aaron Young and the actor James Franco.

That’s right: James Franco is entitled to a 5% royalty for the resale of a work of art and cannot be found. Others might wonder where can’t James Franco be found these days?

I suspect the trouble here reflects a lack of resources and resourcefulness more than a conflict of interest, but the council does have an incentive not to find the artists. If an artist can’t be found in seven years, the royalty right “terminates and such money shall be transferred to the council” for use in California public art programmes. About $50,000 has been transferred in this way.

The solution is simple: take bids for the job from independent collecting agencies, either for-profit or non-profit ones, which can be replaced if needed.

Prioritise education about droit de suite, should a law pass 

In 2011, when I was reporting Grotjahn’s suit against Valentine, I interviewed three young gallery owners in Los Angeles who handled some secondary-market sales and they said they had never heard of the law. (Two sounded believable.) I also met artists who knew of some statute but didn’t know if and when it applied to them.

This much is clear: if a federal resale royalty law is passed, art schools everywhere should help their students understand it. The bigger challenge, I believe, is making the law logical and reasonable enough that sellers across the board will comply with it. 

Source: The Art Newspaper