Does Proposed Resale Royalty for Visual Art Conflict With Copyright Act?

Transfer of Title

Nevertheless, the ART Act conflicts with a basic philosophical underpinning of the Copyright Act, which would appear difficult for the courts to reconcile in the absence of greater instruction from Congress.

In addition to protecting against unlawful copying of protected works, the Copyright Act affords visual artists special “rights of attribution and integrity” to prevent “any intentional distortion, mutilation, or other modification” of their works that might harm their reputations. See, 17 U.S.C. '106A. What the Copyright Act expressly does not legislate, however, is the transfer of legal title to physical works that embody copyrights.

Section 202 of the Copyright Act makes clear: “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.”

Similarly, '109(a) of the Copyright Act, which is the “first sale doctrine,” provides that “the owner of a particular copy ' is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” The legal owner of an original work of art owns that “particular copy” and may dispose of it as she or he desires, without regard for the artist copyright owner.

ART Calls for Royalty On Future Sale

The ART Act appears to run contrary to ”202 and 109(a) of the Copyright Act. The ART Act proposes to amend '106 to include a new “exclusive right” for visual artists: the right “to collect a royalty for the work if the work is sold by a person other than the author of the work for a price of not less than $5,000 as the result of an auction.” (The proposed royalty is 5% or $35,000, whichever is less.) Moreover, the ART Act proposes to enlarge the Copyright Act's definition of “infringement” to include not just unlawful copying, but also the “[f]ailure to pay a royalty provided for under this subsection.”

In other words, the ART Act proposes now to use the Copyright Act to redistribute wealth based upon the transferred ownership of physical objects embodying certain “works of visual art.” The ART Act is unconcerned with the question of whether those works of visual art have been copied, only whether the work has been resold through certain forums ( i.e. , certain auction houses). This would fundamentally repurpose the Copyright Act in discord with '202 as well as the first sale doctrine.

“Display” under the Copyright Act means the showing of a “copy” of a work. See, '101. Under the first sale doctrine, however, the owner of the physical art to be sold (i.e., the “particular copy”) “is entitled, without the authority of the copyright owner, to display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.” See , '109(c). Thus, the owner of a work of visual art currently may have the work displayed, and sold, physically at an auction without the artist's involvement.

Other copies of the work displayed, for example, in an auction house's catalogue, may require the permission of the artist (the copyright owner), but the Copyright Act already provides the artist with whatever protection may be warranted. The ART Act does not purport cumulatively to address those separate “displays” of other copies. Rather, the ART Act goes a step further and seeks to reward the artist for the possible economic consequences following all of a work's combined “displays” at an auction ' even if the sale was based on a display of the physical work itself, for which the owner required no artist/copyright owner permission under the first sale doctrine. The ART Act does not seem philosophically tethered to other sections of the Copyright Act in this regard.

Moreover, the ART Act would create a distinction between the sales of physical objects in the “visual art” context, and the sales of physical objects in all other contexts, such as music and film. As Sen. Baldwin noted when introducing the legislation in the Senate, this distinction has been justified as providing a means for visual artists to be on a compensatory par with musicians and literary authors, who typically continue to receive royalties based upon the later sales of copies of their original works.

But visual artists, too, retain copyrights in their works after they have sold the physical embodiments of their works. There is no discriminatory treatment within the current language of the Copyright Act that would put visual artists at a disadvantage for the later copying of their works.

Rather, the ART Act proceeds upon a more practical and market-based reality that works of visual art, unlike works of music and literature, are not often copied because there is not a significant demand for copies of visual art: Art purchasers and collectors tend to value originals. Of course, that same market-based reality dictates that visual artists may command relatively higher prices for the one-time sales of their works. (It is nonetheless clear that the economic potential of visual art may not be realized until later in or even after an artist's life.)

In any event, the ART Act proposes to transform the Copyright Act beyond its generally stated intent of granting exclusive intangible rights for limited times to authors. The ART Act would use the Copyright Act effectively to vest certain visual artists with more expansive reversionary rights of co-ownership in the tangible works of art themselves for resale purposes.

ART Act Conflicts With Taking Clause

Congress may view its power to regulate resales of visual works of art as derivative of the copyright clause of the U.S. Constitution, or perhaps the interstate commerce clause. See, Estate of Robert Graham v. Sotheby's Inc., 860 F.Supp.2d 1117 (C.D.Calif. 2012), striking down the California Resale Royalty Act on interstate commerce clause grounds (currently on appeal).

However, the Fifth Amendment's taking clause may override all such possible sources of legislative authority with regard to previously purchased works of visual art. The taking clause provides that “private property [shall not] be taken for public use, without just compensation.” The ART Act would require the owners of certain visual works of art to share their resale proceeds with the artists. An “owner” of such art would have to be viewed as holding his or her property in partial constructive trust for the artist. The ART Act would thus override traditional notions of property ownership, which may be viewed as a “regulatory taking” by the federal government, at least to the extent that the ART Act does not purport to exempt works of visual art purchased prior to the proposed act's effective date of one year after enactment.

The ART Act's purpose is nevertheless laudable. But the Copyright Act is not a blank canvas.

William L. Charron is a partner and co-chair of the art law practice group at Pryor Cashman. He is also an adjunct professor at Columbia Law School.

In the entertainment industry, there are many buyers and sellers of visual art works. This article considers proposed legislation in the U.S. Congress calling for a resale royalty for art creators.

Earlier this year, Congressman Jerrold Nadler (D-NY) introduced H.R. 4103'in the U.S. House of Representatives. The proposed legislation is known as the American Royalties Too Act of 2014, or the ART Act. Senators Edward Markey (D-MA) and Tammy Baldwin (D-WI) introduced similar legislation, S.2045, at the same time. The ART Act would amend the U.S. Copyright Act, 17 U.S.C. ”101, et seq. , to provide for a resale royalty right for the authors of certain “works of visual art.”

The ART Act is conceived upon the following principle: Visual artists (such as painters, photographers and sculptors) who have sold their works should be entitled to share in the later appreciation of the value of those works, at least to some extent, if and when the art is subsequently resold. This principle is embraced and known in other parts of the world as droit de suite .

Transfer of Title

Nevertheless, the ART Act conflicts with a basic philosophical underpinning of the Copyright Act, which would appear difficult for the courts to reconcile in the absence of greater instruction from Congress.

In addition to protecting against unlawful copying of protected works, the Copyright Act affords visual artists special “rights of attribution and integrity” to prevent “any intentional distortion, mutilation, or other modification” of their works that might harm their reputations. See, 17 U.S.C. '106A. What the Copyright Act expressly does not legislate, however, is the transfer of legal title to physical works that embody copyrights.

Section 202 of the Copyright Act makes clear: “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.”

Similarly, '109(a) of the Copyright Act, which is the “first sale doctrine,” provides that “the owner of a particular copy ' is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” The legal owner of an original work of art owns that “particular copy” and may dispose of it as she or he desires, without regard for the artist copyright owner.

ART Calls for Royalty On Future Sale

The ART Act appears to run contrary to ”202 and 109(a) of the Copyright Act. The ART Act proposes to amend '106 to include a new “exclusive right” for visual artists: the right “to collect a royalty for the work if the work is sold by a person other than the author of the work for a price of not less than $5,000 as the result of an auction.” (The proposed royalty is 5% or $35,000, whichever is less.) Moreover, the ART Act proposes to enlarge the Copyright Act's definition of “infringement” to include not just unlawful copying, but also the “[f]ailure to pay a royalty provided for under this subsection.”

In other words, the ART Act proposes now to use the Copyright Act to redistribute wealth based upon the transferred ownership of physical objects embodying certain “works of visual art.” The ART Act is unconcerned with the question of whether those works of visual art have been copied, only whether the work has been resold through certain forums ( i.e. , certain auction houses). This would fundamentally repurpose the Copyright Act in discord with '202 as well as the first sale doctrine.

“Display” under the Copyright Act means the showing of a “copy” of a work. See, '101. Under the first sale doctrine, however, the owner of the physical art to be sold (i.e., the “particular copy”) “is entitled, without the authority of the copyright owner, to display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.” See , '109(c). Thus, the owner of a work of visual art currently may have the work displayed, and sold, physically at an auction without the artist's involvement.

Other copies of the work displayed, for example, in an auction house's catalogue, may require the permission of the artist (the copyright owner), but the Copyright Act already provides the artist with whatever protection may be warranted. The ART Act does not purport cumulatively to address those separate “displays” of other copies. Rather, the ART Act goes a step further and seeks to reward the artist for the possible economic consequences following all of a work's combined “displays” at an auction ' even if the sale was based on a display of the physical work itself, for which the owner required no artist/copyright owner permission under the first sale doctrine. The ART Act does not seem philosophically tethered to other sections of the Copyright Act in this regard.

Moreover, the ART Act would create a distinction between the sales of physical objects in the “visual art” context, and the sales of physical objects in all other contexts, such as music and film. As Sen. Baldwin noted when introducing the legislation in the Senate, this distinction has been justified as providing a means for visual artists to be on a compensatory par with musicians and literary authors, who typically continue to receive royalties based upon the later sales of copies of their original works.

But visual artists, too, retain copyrights in their works after they have sold the physical embodiments of their works. There is no discriminatory treatment within the current language of the Copyright Act that would put visual artists at a disadvantage for the later copying of their works.

Rather, the ART Act proceeds upon a more practical and market-based reality that works of visual art, unlike works of music and literature, are not often copied because there is not a significant demand for copies of visual art: Art purchasers and collectors tend to value originals. Of course, that same market-based reality dictates that visual artists may command relatively higher prices for the one-time sales of their works. (It is nonetheless clear that the economic potential of visual art may not be realized until later in or even after an artist's life.)

In any event, the ART Act proposes to transform the Copyright Act beyond its generally stated intent of granting exclusive intangible rights for limited times to authors. The ART Act would use the Copyright Act effectively to vest certain visual artists with more expansive reversionary rights of co-ownership in the tangible works of art themselves for resale purposes.

ART Act Conflicts With Taking Clause

Congress may view its power to regulate resales of visual works of art as derivative of the copyright clause of the U.S. Constitution, or perhaps the interstate commerce clause. See, Estate of Robert Graham v. Sotheby's Inc., 860 F.Supp.2d 1117 (C.D.Calif. 2012), striking down the California Resale Royalty Act on interstate commerce clause grounds (currently on appeal).

However, the Fifth Amendment's taking clause may override all such possible sources of legislative authority with regard to previously purchased works of visual art. The taking clause provides that “private property [shall not] be taken for public use, without just compensation.” The ART Act would require the owners of certain visual works of art to share their resale proceeds with the artists. An “owner” of such art would have to be viewed as holding his or her property in partial constructive trust for the artist. The ART Act would thus override traditional notions of property ownership, which may be viewed as a “regulatory taking” by the federal government, at least to the extent that the ART Act does not purport to exempt works of visual art purchased prior to the proposed act's effective date of one year after enactment.

The ART Act's purpose is nevertheless laudable. But the Copyright Act is not a blank canvas.

William L. Charron is a partner and co-chair of the art law practice group at Pryor Cashman. He is also an adjunct professor at Columbia Law School.