California’s Resale Royalty Act Explained
The saga of litigation over the scope of the California Resale Royalty Act (CA Civil Code § 986) has come to an end. The Supreme Court has declined to hear an appeal brought by artists including Chuck Close and Sam Francis after the appellate court found a portion of the Act unconstitutional. While both sides of the litigation are spinning this news in their favor, the Supreme Court’s decision finally clarifies the scope of the law. Due to this high profile lawsuit and the inevitable flow of litigation to come, those who sell art in California should expect a far greater enforcement of these rules in the future.
What are Resale Royalties?
Resale royalties are a mechanism to reward an artist for an appreciation in value in their work based on secondary market sales. Typically, when an applicable work is sold at auction or through a gallery, a portion of the sale price is paid directly to the artist or their estate. Proponents of such laws argue that artists never fully realize value of their work because early pieces are historically sold for low prices. Thus, those in favor of such royalties, typically “artist rights” institutions, claim that the artist should receive a small percentage when their work is resold for a profit.
Opponents of such laws, typically influential auction houses and galleries, argue that artists themselves benefit indirectly from high resale vales as artists can increase the price of their direct sales to reflect such appreciation. Further, opponents claim that such royalties unfairly burden the art market. In fact, recent studies have hinted that the United Kingdom’s strict resale royalty system may have stunted the growth of its art market in comparison to other major countries.
The California Artist Resale Royalty Act was enacted into law in 1976. While federal laws have been proposed, California remains the only state to enact such legislation. As enacted, the law applied to all works sold from California, regardless of the location of the buyer. Lawyers may immediately notice an issue with such legislation: the Constitution grants Congress the exclusive power to regulate interstate commerce, which in turn typically prevents states from enacting legislation that regulates out-of-state sales.
Due to dismal enforcement of this law, a group of major artists brought a lawsuit for unpaid royalties against Christie’s, Sotheby’s, and eBay. The defendants successfully defended the suit based on the commerce clause issue mention above. While the 9th Circuit Appellate court found that the portion of the law that pertained to out-of-state sales was invalid, they upheld the rest of the law as it pertains to sales made wholly within California.
The Rules Checklist
Given that the scope of the law has now been defined (pending future litigation of course) the applicability of the law can be broken down into an easy to understand checklist. If a sale satisfies the checklist below it will be subject to a 5% royalty to be paid to the artist or their heirs. If the artist or thier estate cannot be located, the payment may be made to the California Arts Council. Finally, the law does not apply in instances where the sale is taking place within 10 years of the initial sale from the artist, and all intervening sales have been between art dealers.
- The sales take place in California, or the seller resides in California.
- The artist is alive, or has been deceased for less than 20 years at the time of sale.
- The Artist is a United States citizen, or has resided in California for at least two years.
- The work is an original painting, sculpture, drawing, or original work of art in glass.
- The work is sold for $1,000 or more.
- The work is resold for a higher amount then the seller’s original purchase price.
- The work is not presently owned by the artist (i.e. this law does not apply to the initial sale from the artist)
The law allows an artist to sue for damages if the seller or sellers agent fails to pay such royalties on applicable works. The artist must bringthe suit within three years after the sale or one year after discovery of the sale, whichever is longer. Finally, the law allows for recovery of attorneys fees in such suits. This is incredibly important, as causes of action that allow for recovery of attorneys fees typically are enforced not only by injured party, but lawyers looking to cash in on industry-wide malfeasance.