Art Law Report

Supreme Court Declines Review of California Resale Royalty Case

Posted by Nicholas O'Donnell on January 12, 2016 at 1:27 PM

The U.S. Supreme Court has declined to hear an appeal of last year’s Ninth Circuit decision striking down part of the California Resale Royalty Act. The law provided royalties to artists on sales after the work leaves the artists’ ownership, on the grounds that artists often fail to enjoy the benefit of an increase in value in their works. Such royalties are more common in Europe, but they are controversial there, too. Opponents argue that it is a deterrent to art trade, and in any event while there is a patchwork of laws, encourages sellers to forum shop to avoid the royalties.

The denial of such petitions for certiorari review are not accompanied by an opinion except in rare cases, and was not here. The denial means that the Ninth Circuit opinion is the final word on the California law, which will not apply to sales outside of California, whether or not the artist is a California resident. Whether the result is good or bad depends very much who you ask; indeed both sides claim victory to a certain extent. The auction houses that pushed to have the law blocked have achieved the freedom from royalties on sales in the bulk of the country, most importantly in New York. For royalty proponents, the imposition of royalties in the largest state in the United States has been upheld and is not going anywhere absent further legislative action by California.

We have covered the law and the ligation in depth before, which you can read here. In a nutshell, the law that provides that a seller of fine art must pay 5% of the sales price to the artist "if the seller resides in California or the sale takes place in California" implicated the Commerce Clause of the U.S. Constitution, which reserves to Congress the power to regulate interstate commerce. That negative grant of power to Congress is known as the Dormant Commerce Clause because while unstated, it restrains the power of the individual states. When Chuck Close and others sued to enforce their royalty rights under the law, Christie’s, Sotheby’s, and eBay argued that the law violated the Dormant Commerce Clause.  The District Court agreed and threw out the whole law.

The Ninth Circuit split the difference. It ruled that the attempt to regulate sales outside of California, even if one party is a Californian, violates the clause. But it also held that the law is severable, meaning that the entire statute need not be struck down. It left in place the royalties on California sales.

There is no appeal as of right from the U.S. Courts of Appeals. Instead, the petitioning party has to convince four of the justices to take the case. Those four justices won’t necessarily agree what the outcome might be, just that it should be heard. Most common reasons to accept a case are when a circuit or circuits disagree such that the law within the United States is not uniform, or if the result is so flawed that it might lead to a repeated misapplication of the law as erroneous guidance.

In the end, the Court provided no guidance as to why it did not year this case, but there is no obvious circuit split, and the California law is unique, so even if some justices felt this was the wrong result, it won’t likely be replicated.

All this takes place against the backdrop of the effort to pass a nationwide resale royalty. There is no question that Congress has the power to do so; the Dormant Commerce Clause has nothing to say about Congress’s authority under the Copyright Clause. As I told ArtNet today, I would expect royalty proponents to use this result to argue the need for a unified national policy, rather than royalties in one place and no royalties in another. Representative Jerrold Nadler (D-NY) has proposed such a law three times, but it has yet to become law or advance to debate. Until then, as I said to ArtNet, we do have a national policy, for better or for worse: no artist resale royalties. Will this outcome move the dial? If the Ninth Circuit opinion did not, it’s hard to imagine the cert denial doing so.

Topics: Legislation, Resale Royalties, Copyright, intellectual property

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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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