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Au Revoir, Droit de Suite—9th Circuit Narrows California Resale Royalty Act to a Single Year’s Sales

Posted by Nicholas O'Donnell on July 9, 2018 at 10:33 AM

The idea of moral rights continues to be a notable difference between European and American intellectual property rights with respect to visual arts. Last week’s decision by the U.S. Court of Appeals for the 9th Circuit in a case brought by artist Chuck Close and others addressing the California Resale Royalty Act (the CRRA) underscores those distinctions. In holding that the CRRA is mostly preempted by federal copyright law and thus can be applied to entitle artists to secondary royalties only for sales of art in a single calendar year—1977—the 9th Circuit affirmed the skepticism with which American law continues to regard anything other than classic copyright. Given the failure of efforts to pass national legislation to provide for resale royalties, this decision is probably the end of the line for the foreseeable future in the U.S. for droit de suite, the term of art used to describe the concept.

There is, for better or worse, clearly no political constituency for resale royalties in the U.S. As I told Law360, and as we’ve opined before about the Visual Artists Rights Act of 1990 (VARA), property rights are in many ways a quintessential American policy. We all reflected on the Declaration of Independence last week, and its proclamation of the primacy of Life, Liberty, and the Pursuit of Happiness—which revised John Locke’s famous statement that governments are instituted to secure “life, liberty, and property.” Copyright is and always will be a limitation on absolute ownership, but Americans guard those limitations jealously. There is little sign that will soon change.

American copyright law codifies what is known as the First Sale Doctrine. While the copyright holder has the power to control reproductions and displays of the protected work, that control does not extend to the original work itself. So if I buy a work of visual art still under copyright, I may not reproduce it without the copyright owner’s permission. I may, however, transfer, sell, display (or destroy) the original work itself. The artist (or her heirs) has no interest in or control over those subsequent transactions.

Many artists’ works’ value only escalate later in their lives. So an artist who sells a work today for a nominal value may see it appreciate during her lifetime but recoup no economic value from those later transactions. Droit de suite alters this dynamic, and compels royalty payments to the artist (or her heirs) upon subsequent sales. Droit de suite does not exist in U.S. law, but is recognized in France in particular, as well as under certain aspects of European Union law.

The CRRA is California’s state law attempt to address this issue. Passed in 1976 with an effective date of January 1, 1977, the CRRA (Cal. Civ. Code § 986), obliges payment of 5% of the sales price to an artist “if the seller resides in California or the sale takes place in California.” The plaintiffs, artist Chuck Close among them, sued on behalf of a class of plaintiffs, alleging that Christie’s, Sotheby’s, and eBay had not paid the royalties due under the act.

The District Court dismissed the case in its entirety in 2012, holding that the law violated the Commerce Clause of the U.S. Constitution. The Constitution empowers Congress to regulate interstate commerce, which since the early days of the Republic has been held to mean a corresponding prohibition against individual states regulating interstate commerce (a concept referred to as the “Dormant Commerce Clause”). The CRRA, on its face, would have regulated sales outside of California, which the District Court held offended the Constitution. Where the District Court struck down the entire law, the 9th Circuit held in 2015 that some of the law could survive—that which applied to sales wholly within California.

The case then returned to the District Court for further litigation. On the defendants’ motion, the District Court again dismissed the entire case in 2016 on different grounds—preemption. Where Congress regulates something, states may not also regulate it in ways that conflict (a function of the Supremacy Clause of the Constitution, a key provision governing federal-state interaction). Reviewing the Copyright Act of 1976, the District Court concluded that the First Sale Doctrine was an expression by Congress of how works of expression can be distributed. As we noted at the time, the 2016 dismissal struggled to explain its reasoning consistent with a 1980 decision (Morseburg v. Baylon) that held that the 1909 Copyright Act (the precursor to the 1976 Act) did not preempt the CRRA. The 1909 Act read: “nothing in this title shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained.” The current § 109 reads that an owner is “entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.”

Last week’s decision focused on just that distinction—between the 1909 and 1976 Acts. Section 301 of the 1976 Act has an express preemption clause. It states:

On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

This is not subtle. As the 9th Circuit noted last week, the 1909 Act has no such express preemption provision, and reviewing Morseburg it held that there is no conflict between the language of the 1909 Act and the CRRA. Thus, for the period of time when both the 1909 Copyright Act and the CRRA were applicable law, the CRRA can survive. But as soon as the effective date of the 1976 Act (January 1, 1978), the CRRA became unconstitutional.

That leaves a single year for artists to claim royalties under the CRRA, for sales entirely within California. The magnitude of such sales is hard to guess at, but surely it is not much.

The implication of the prohibitions on state regulation of resale royalties is that Congress does have the power to regulate (or create) them. There is no reason to expect any such action, however. Rep. Jerrold Nadler (D-NY) has made several efforts to create a droit de suite under American law, and none have gotten anywhere. Nadler authored the American Royalties Too (ART) Act of 2015, the American Royalties Too Act of 2014, and the Equity for Visual Artists Act of 2011, none of which were even considered in committee, let alone receiving a full vote, let alone being passed into law.

Barring unexpected developments (or Supreme Court intervention and reversal), this is probably the end of the line for droit de suite in America.


Topics: American Royalties Too Act, Chuck Close, Commerce Clause, Visual Artists Rights Act of 1990, Christie's, Cal. Civ. Code § 986(a), VARA, Rep. Jerrold Nadler (D-NY), Dormant Commerce Clause, Preemption, droit de suite, California Resale Royalty Act, U.S. Constitution, Sotheby's, eBay, CRRA, Declaration of Independence, Copyright Act of 1976, Morseburg v. Baylon, John Locke, Supremacy Clause, 1909 Copyright Act

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About the Blog

The Art Law Report provides timely updates and commentary on legal issues in the museum and visual arts communities. It is authored by Nicholas M. O'Donnell, partner in our Art & Museum Law Practice.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

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