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Resale Royalty Statute Receives Strong Support from the California Attorney General

Friday, December 05, 2014 5:25 PM | Alma Robinson (Administrator)

The California Resale Royalty Act (CRRA), which is under attack in the federal courts, has received strong support from Attorney General Kamala Harris. California’s AG filed an amicus brief in November, urging the US Court of Appeal to reverse a District Court ruling that found Civil Code 986 unconstitutional on a dormant commerce clause theory.

The CRRA was introduced by former State Sen. Alan Sieroty, who was honored for his advocacy on behalf of artists at our 2013 Artistic License Awards in Santa Monica. The statute, which CLA helped to draft, was passed by the state legislature and signed by Governor Edmund Brown in 1976. If a work of art is resold for at least $1,000, and for more than the seller paid for it, the seller is required to pay the artist a 5% resale royalty. California is the only state in the United States that has enacted such a royalty for visual artists.

The California law, Civil Code Section 986, applies to original drawings, paintings, sculptures, and works of art in glass if the work is sold in California or the seller is a resident of California. In addition, the artist must be a California resident or a US citizen. Although the royalty can be assigned to a third party in writing, it cannot be waived by the artist except for a larger percentage. The royalty applies for 20 years after the artist’s death, providing a legacy for heirs and estates.

Los Angeles attorney Eric George sued Sotheby’s, Christie’s and E-Bay in 2011, claiming unpaid royalties on behalf of Chuck Close, Laddie John Dill, the Sam Francis Foundation and the estate of Robert Graham. The defendants claimed the law was an unconstitutional burden on interstate commerce. US District Court Judge Jacqueline Nguyen agreed, and dismissed the complaint on dormant commerce clause grounds.

CLA’s amicus brief, which was prepared by attorneys Steven Hirsch and Katherine Lovett of the San Francisco law firm of Keker & Van Nest, and CLA Board Member Jack Davis, argued that such a significant constitutional issue should not be decided on a motion to dismiss. The defendants, we stated, needed to provide evidence of the administrative burden they claimed and show how it interferes with interstate commerce rather than relying on hypothetical arguments.

The issue is now before the 9th Circuit Court of Appeal, which first heard oral arguments in April. Recently, the court announced that it would rehear the issues en banc on December 16 in order to consider two cases concerning the dormant commerce clause that were decided after Judge Nguyen’s dismissal of the CCRA case.

The Attorney General’s brief argues that the CRRA does not prescribe the terms or conditions of any sale, but merely imposes financial obligations on California residents once a sale takes place. Furthermore, the brief states, “No facts have been developed that would show that any transactions at issue in the plaintiffs’ complaints do not take place at least partly in California.”

A proposal for federal legislation, the American Royalties Too Act, was introduced earlier this year and is pending in Congress. The US Copyright Office, which opposed the resale royalty in its 1992 report on resale royalties, has since updated its research. In a second report issued in 2013, the Copyright Office reversed its previous position and now recommends the enactment of a federal resale royalty for visual artists. Because of a reciprocity requirement in the 1948 revision of the Berne Convention, American artists and their estates cannot obtain royalties from resales in foreign markets until we have a federal law, hence the name of the current proposal in Congress: “American Royalties Too.”

The California law was modeled on the European droit de suite, which originated in 1920 in France, and is now in effect in more than 70 countries around the world as well as the Commonwealth of Puerto Rico. The law gives visual artists a future income stream similar to the royalties that artists working in other disciplines, such as music and literature, enjoy when their work is reproduced. 

The en banc Court of Appeal may rule outright that the CRRA does not violate the U.S. Constitution.  Another possible outcome of the current California litigation is that the appellate court will remand the case to the District Court for evidentiary findings. In light of their compliance with similar laws in most major art markets around the world, the auction houses would have a hard time proving that their administrative duties under CCRA present an unconstitutional burden.

Alma Robinson, Executive Director                                                                  

California Lawyers for the Arts  



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