California Royalties Law Redux Lands at Ninth Circuit

(AP Photo/Frank Augstein)

PASADENA, Calif. (CN) – Attorneys in a seven-year class action lawsuit between a group of California artists and Sotheby’s and Christie’s sparred before a Ninth Circuit panel Tuesday over whether a state law requiring royalties from auction sales is pre-empted by federal copyright law.

Tuesday’s session marks the second time the case has come before the Ninth Circuit. This time, the artists seek reversal of U.S District Judge Michael Fitzgerald’s finding of pre-emption in April 2016.

The California Royalty Resale Act requires resellers of fine art to pay a 5 percent royalty to the creator if the seller is based in California or the sale takes place in the Golden State.

Attorney Michael Bowse with Browne George Ross, representing the artists, told the panel his clients have the right to “dictate transactions” involving their works.

He called California “the center of filmmaking” and home to many artists because the state “prides itself on protecting the arts.”

The Copyright Act has nothing to do with reproduction or redistribution of art, Bowse said, but does provide the artist with the opportunity to receive royalty payments. The 5 percent royalty “doesn’t operate as a burden” in sales of fine arts, he said.

But the auction houses say the state law is pre-empted by the first-sale doctrine of the Copyright Act, which allows someone who owns a copyrighted work such as a painting or a copy of a book to sell it without the permission of the copyright owner.

Bowse pushed against the doctrine, saying it “terminated” the rights of artists for full control over distribution of their work.

U.S Circuit Judge Paul Watford said copyright protections could end after artists sell their creative work.

“I think it hurts your position,” Watford said. “Seems to me if the principle holds, the California law can’t sit with that principle.”

The class, which could include hundreds of artists, say the auction houses “engaged in a pattern of conduct to conceal” sales of fine art and didn’t tell artists so they could collect royalties.

In order to skirt state law, auction houses “deliberately concealed” whether the artist’s residency was in California and whether or not the sale took place in California, according to an October 2011 complaint.

The company eBay was originally a defendant but won dismissal after establishing it is an online marketplace, not a seller of goods such as fine arts.

But Bowse said he believes eBay is seller and auctioneer, not only a marketplace, since they receive bids and settle disputes between parties.

The case has been bouncing between federal court and appellate court for the last seven years.

The litigation began in 2011 as a trio of class actions targeting Christie’s, Sotheby’s, and eBay. The named plaintiffs are heirs of prominent California sculptor Robert Graham, painter and photographer Chuck Close, artist Laddie John Dill and the foundation established by painter and printmaker Sam Francis.

In 2015, the full Ninth Circuit struck down a clause of the state law, finding it violates the dormant Commerce Clause of the U.S. Constitution.

Three months later, the panel remanded the case to U.S. District Judge Michael Fitzgerald, who ruled against the artists.

Fitzgerald found the California statute conflicts with the federal copyright law. By granting artists some say in later sales of their works, the law “disrupts Congress’s efforts to balance the interests of copyright holders and downstream consumers [and] it must be pre-empted,” Fitzgerald ruled.

Bowse said Tuesday the California statute is “important because it is designed to protect artists who lack bargaining power and leverage.” He said California “stepped in to protect the rights of artists” when the value of their work increases substantially.

“That value is created by [the artists] and not by anybody else,” he said.

California enacted its royalty act to encourage creativity by allowing artists to receive some benefit when the value of their paintings, drawing and sculptures rise, often dramatically.

It was prompted in part by the 1973 sale of a work by Robert Rauschenberg for $85,000 that the artist had sold for just $900, according to an amicus brief by California Lawyers for the Arts.

The brief notes authors, musicians and playwrights generally receive royalties whenever their works are published or performed. But visual artists who make one-of-a-kind works, such as painters and sculptors, do not.

Artists seek the payment of royalties, with interest, not paid under the state’s royalties act, along with “punitive damages” from the auction houses over their “intentional election to flout the law,” according the original complaint.

Artists are also seek a court order ensuring auction houses comply with “obligations under the Resale Royalties Act.”


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