What are the Artists’ Resale Rights, whether they really gain an objective of fairness and what is the current status of acceptance of ARR regulation throughout the world - all these questions in a new article in the Art Law section
Mediator, Business Writer, Trademark and Patent Attorney
The two sides of a coin. A write-up on Artists’ Resale Rights.
In short, Artists’ Resale Rights (further ARR) or Droit de suite allows visual artists to receive royalties from secondary sales of their artworks. There are two stories, that are most frequently mentioned when talking about ARR. The first one, is the story of Jean-Francois Millet, who sold his famous painting L’Angelus for mere 1,000 francs in 1860, while 29 years later and 14 years after the death of the painter, it sold at an auction for 553,000 francs (at the time this was the most expensive painting sold at an auction). Sadly, the family of the revered painter lived in miserable conditions and did not see a dime from this spectacular sale. The second story is the one of Robert Rauschenberg, who sold his painting Thaw for $900 in 1958 and several years later witnessed its incredible success at an auction, fetching $85,000. To note that Rauschenberg likewise did not profit from such a tremendous increase in the value of his work, which made him an ardent campaigner for the resale royalty rights for artists in the United States.
For the uninitiated, it might sound weird that an artist should have the right to receive an additional payment for something s/he already sold. Some argue it by reference to other assets, which tend to appreciate in value over time and yet do not give rise to any obligation to pay the initial creator or owner. Think, for example, real estate and an architect who designed a house. However, of course, when we talk about copyright for works of art those arguments are void. On the other hand, it might seem inherently unfair that someone cashes in huge profits on an artwork, while its creator (or his/her family) is starving. This noble idea of fairness was, in fact, the guiding light to the establishment of ARR in the first place. Nevertheless, in reality, it is all not so straightforward, as ARR has a range of limitations, it is not available to everyone and causes heated discussions among professionals as to whether it is the best solution to the problem and even… whether the problem actually exists.
In this article, I would like to bring the two opposing views on the matter of ARR, highlighting the issues which still remain unaddressed or poorly addressed. However, first, I would like to give an overview of the state of existing regulation on ARR.
The history, scope, and application of ARR
In 1920, following the above-mentioned story with the heirs of Jean-Francois Millet, France became the first country to introduce droit de suite (or ARR), defined as the moral right of an artist to receive resale royalties for his work. France was followed by Belgium in 1921 and Czechoslovakia in 1926. ARR was defined as inalienable, unwaivable, and non-assignable right. In essence, as Alexander Bussey noted, ARR is at the same time an economic right and an extension of the creator’s personhood, as the creator never gives up all of his/her property interests in the artwork (Bussey, A. The Incompatibility of Droit de Suite with Common Law Theories of Copyright, 2013).
The moral right for the authors to receive resale royalties was for the first time introduced in an international document — the Berne Convention for the Protection of Literary and Artistic Works — in 1948. However, provided the nonmandatory character of this provision, it took many more years before ARR became a widespread practice.
In 2001 the European Union implemented the Directive on the Resale Rights for the Benefit of the Author of an Original Work of Art (Directive 2001/84/EC). The Directive declared the resale rights as “unassailable and inalienable right enjoyed by the author of an original work of graphic or plastic art, to an economic interest in successive sales of the work concerned”. In accordance with the provisions of the Directive, the maximum trigger price for the ARR is set at EUR 3,000. In other words, if the sale is equal or exceeds EUR 3,000, the author of the original work has to receive a royalty payment. To note, that many countries decided to put the trigger price lower (even much lower) than EUR 3,000. For example, Sweden, Denmark, and Finland impose the ARR payment duty from the sale of as low as EUR 250, Germany — as of EUR 400, France — as of EUR 750.
The Directive sets the sliding scale for royalty payments based on the resale price of an artwork. The percentages are set as follows:
4% for the artworks sold up to EUR 50,000;
3% — between EUR 50,000 and EUR 200,000;
1% — between EUR 200,000 and EUR 350,000;
0.5% — between EUR 350,000 and EUR 500,000; and finally 0.25% for the sale price in excess of EUR 500,000.
The above payment scale is cumulative, meaning that the royalty is calculated based on the percentage of the resale price falling into each of the tiers outlined.
As an example, for the artwork sold at EUR 250,000 the calculations for ARR will be as follows:
4% of 50,000 = EUR 1,500
3% of 150,000 = EUR 4,500
1% of 50,000 = EUR 500
ARR = EUR 6,500
The payment of royalties is capped by the Directive at EUR 12,500 for any single sale. That means that for any single sale of an artwork ARR paid cannot exceed EUR 12,500 (note, that without capping for an artwork sold for e.g. EUR 10 million ARR would have resulted in EUR 32,000). Furthermore, ARR is applicable only to secondary sales through an art market professional, meaning e.g. an art gallery, an agent or an auction house, but in general, it excludes museums and private individuals.
The Directive, unlike usual, had a generous transition period of 4 years. Moreover, certain states (i.e. the UK) stalled the process even longer. Nonetheless, 11 years later, by 2012 ARR has been fully harmonized across the European Union.
In other countries, the situation is less rosy. Thus, one of the main art markets, the United States of America, has not introduced ARR on the national level. The state of California is the only jurisdiction in the US, which has a royalty scheme in place. According to the California Resale Royalty Act of 1976 artists “have a right to receive a five percent royalty on any resale of their artwork valued at $1,000 or more — unless the artists expressly waive the right to receive royalty via contract.” (Cal. Civil Code para. 986) The right under this Act continues for the life of an artist plus 20 years. In comparison to the European provisions, the California Act allows waiving ARR and limits them to mere 20 years after the death of an artist (to note: in Europe ARR are unwaivable and as with other copyright provisions their duration is the life of an artist plus 70 years after his/her death.)
Another major (and rapidly growing) art market — China — equally does not have ARR in place. No royalty scheme at a national level exists in Canada either. Even though in the context of Canada there are quite some talks about introducing ARR as a means to protect their indigenous people’s (Inuit) rights. In that sense Canadian situation is similar to that of Australia, which also has a big indigenous people’s community, whose art starts to acquire worldwide recognition and surely deserves to be fairly remunerated. Contrary to Canada though, Australia has already passed the Resale Royalty Right for Visual Artists Act in 2009. The terms provided are similar to those of the European Union Directive, likewise granting ARR to authors of original artworks for a duration of their life and 70 years after their death. The eligible artworks are those resold commercially for $1,000 or more and ARR is set at 5%. According to the Australian Copyright Agency, “over 63% of the artists receiving royalties are Aboriginal or Torres Strait Islander artists and they have received 38% of the total royalties”.
Notably, sometimes even in the absence of a law governing ARR in the country, some art market professionals decide to be proactive and implement the resale royalty schemes of their own. For example, no legislative framework for ARR exists in South Africa, however, e.g. Aspire Art Auctions introduced ARR with a sliding scheme of royalties alike the one in the EU, from its very first auction held in 2016. Also in the UK, even before the official introduction of ARR, several galleries, e.g. Lisson Gallery and Victoria Miro were already paying artists a share of the sales following the French droit de suite system. Even in the US, the Leo Castelli Gallery was known to be using the Artist’s Reserved Rights Transfer and Sale Agreement designed by a curator Seth Siegelaub and an attorney Robert Projansky in 1971 (Article 2 thereof stipulates that collectors agree ”to give the artist a resale royalty of 15% of the increase in price over the initial sale”).
Nonetheless, even though the local ARR regulations are in place in over 70 countries and even though it is internationally recognized by the Berne Convention (Art.14ter), there is still a long way to go before a truly international regulation of this question. The art world in the meantime has long become global, so the potential need for such an international regulation more and more comes onto the agenda of policymakers. Thus, on April 28, 2017, an International Conference on Artist's Resale Rights took place in Geneva. The Conference was attended by policymakers from WIPO (World Intellectual Property Organization) member states, various collective management organizations, representatives from the academic world and private sector (incl. galleries and auction houses). The participants had a chance to hear different perspectives and implementation experiences from around the world. It is, of course, early to conclude that the international regulation is anywhere near, yet the matter begins to get traction and discussions around it increasingly arise.
These discussions are also fueled by certain lawsuits, that hit the news. In France, for example, Christie’s had an extensive legal battle around one of the aspects related to ARR, namely to the duty to pay. In short, Christie’s (like many other auction houses) were imposing the duty to pay on the buyer. In March 2017 the Court of appeal in Versailles held that this practice (hence, also the clause in the Christie’s’ general conditions of sales) infringes on an article of the French Intellectual Property Code. A year later, in November 2018, the French Supreme court overturned the decision of the Court of Appeal and ruled that the buyer rather than the seller of an artwork can be charged the levy if the conditions of sale include such a clause (which in case of Christie’s they do). In other words, the buyer can be asked to pay ARR.
Here let me pause for a moment and explain the problem. In accordance with the Directive (2001/84/EC, Art.1.(4)) the duty to pay ARR is on the seller. However, in the implementation phase, some countries decided to impose the payment duty on the seller, while some others — on the buyer. In certain countries, like in the UK, it is stipulated that the seller and the buyer are “jointly and severally liable for the payment of the royalty”. All this creates quite some confusion and the so-called cascade effect. In simple terms, the cascade effect occurs when a dealer buys an artwork in a country where the seller pays ARR and further sells in a country, where the buyer pays ARR, in such a way evading the royalty altogether. This complexity is one of the issues with ARR, frequently brought up by their opponents.
In what follows, I would like to elaborate also on the other hurdles, bringing in two opposing views on the matter of ARR.
The case against ARR
The opponents of ARR emphasize the complexity of the system, inconsistencies within it and the fact that it essentially tries to solve the nonexistent problem. In his fairly critical article “The Unconvincing Case for Resale Royalties” published in The Yale Law Journal, Guy A.Rub stresses that visual artists are neither poor nor in a weak bargaining position, thus the “Starving Artists Rationale cannot justify” ARR enactment. Rub juxtaposes two different business models: (1) a single copy business model and (2) multi-copies business model. In the latter, provided that the copies are close-to-perfect substitutes (think copies of a novel or a movie), in the absence of regulation the producers of these copies would have been able to compete with the artist. That is an undesirable situation, which is mitigated by the need to pay royalties to the artist-creator (the “classic” royalty scheme). On the contrary, according to Rub, in the single copy business of visual artists, this problem simply does not exist. In this case, the creation of value happens at the outset, not through producing a multitude of copies. Besides, such works are unique and copies can never act as substitutes. Therefore, ARR is equaled to subsidies rather than remedies. In a different article, Guy Rub even compared ARR schemes to a regressive tax, “taking from the poor and giving it to the rich” (see Springman, Ch., Rub, G. “Resale Royalties Would Hurt Emerging Artists”, Artsy, Aug.08, 2018).
Frequent argument cited by the opponents of ARR is the fact that it is sometimes cheaper to pack an artwork, ship it away to a location with no ARR regulation and sell it there, instead of actually paying the royalty. This might have an influence on the art market (“might” because research studies so far only found a negligible effect of the introduction of ARR on the art market in question). Collection, administration and distribution expenses also seem to be an additional unnecessary burden. Moreover, ARR more than often gets paid to artists’ estates rather than to young artists who might actually need it the most.
Finally, ARR has one “inherent absurdity”, being the duty to pay ARR even in case of an actual loss. In other words, if a painting was initially sold e.g. for $10K and 5 years later is sold at an auction for $8K, ARR is still due (subject to other qualifying criteria of course). This situation might have been resolved if ARR had been linked to a profit instead of the entire sum of a transaction. On the other hand, that would have added yet another layer of administrative complexity to the system.
Therefore, in the words of Guy Rub: “The conclusion is that resale royalty rights do not increase the total income of artists, but instead inefficiently redistribute wealth to older and more successful artists while generating wasteful transaction costs.”
The case for ARR
One of the foremost arguments in favor of the introduction of ARR is fairness. As mentioned in the historical example of Millet, it does not seem to be fair that the artist or her/his family live in miserable conditions, while the artist becomes the world’s darling, fetching high prices at auctions. It also does not seem to be fair that while a gallery or an art dealer profits from the sale, an artist receives no share of that profit.
The introduction of ARR, contrary to what their opponents claim, seems not to have a downside to it. Amongst others, the research conducted by Joelle Farchy (professor at the University of Paris-I, Pantheon-Sorbonne) and her team found that the establishment of ARR in a particular country is likely not to have a negative effect on that country’s art market. Several other pieces of research rendered comparable results, which do not indicate any negative impact of ARR on the art trade. In other words, if ARR is introduced, artists win and no one loses.
ARR is just a small percentage of the sale. Nevertheless, it is an important add-on to the incomes of both artists and their estates. Artists use it for living expenses, art materials, and studio space; while estates use it for cataloging, promoting the artists and general administration of the estate (see Waugh, M. “We Owe Artists the Crucial Income Resale Royalties”, Artsy). All these are important expenses and it makes perfect sense to contribute to them from money circulating around the sales of artworks.
In what concerns the administrative burden so frequently cited, worth noting that data compiled by ADAGP (the French CMO for graphic and visual artists) clearly show that the cost of managing ARR is “relatively light”, namely just around 0.027 percent of the turnover of galleries and auction houses. As the CEO of ADAGP Marie-Anne Ferry-Fall emphasized: “The economic argument against the artist’s resale right is just a fallacy”.
To conclude, the issues around Artists’ Resale Rights remain a source of heated discussions and bring about sometimes completely opposing views. It might be not the perfect system with many inherent flaws; potentially there could be a better way instead. Be that as it may, an optimal solution calls for an international discussion and for an international effort both on legislative, as on administrative levels.