The California Resale Royalties Law: a Primer

Chuck Close and other artists have filed suit against Sotheby's and Christie's demanding resale royalties. (Courtesy Getty Images)

“I’ve been working my ass off for you to make that profit?” the artist Robert Rauschenberg said to collector Robert Scull in 1973 as he shoved him after an auction at Sotheby Parke Bernet, at which Mr. Scull sold a number of contemporary artworks for sums far exceeding what he had initially paid. The artists who had produced the works, of course, received nothing.

Three years later, California governor Jerry Brown signed into law the California Resale Royalties Act, which required people selling art to pay five percent of the sales price to the artist, if certain requirements were met. Today, the law is not frequently enforced, and, based on interviews with art market players, not completely understood. However, the law has been thrust into the news of late thanks to two lawsuits.

Chuck Close, Laddie John Dill and other artists have joined forces to sue Sotheby’s and Christie’s, arguing that the houses owe them hundreds of thousands of dollars in resale royalties. Meanwhile, Los Angeles painter Mark Grotjahn has been waging a legal battle against collector Dean Valentine–who refuses to pay the royalties, arguing that they are discriminatory–and that case finally has a court date.

While all of this looks, on the surface, to be a bit dry, what is at stake is nothing less than how we value the roles of various players in the art market. Mr. Scull argued, as many collectors do today, that their risk-taking support of an artist justifies their making a profit off the sale of the work. Rauschenberg, like many other artists, disagreed.

While royalty laws exist in Europe–France, for instance, adopted a droit de suite statue in the 1920s to support artists’ widows after World War I–they have not been popular in the U.S. The European Union passed a royalties statute in 2006, which has been implemented in stages. (England, the home of auction hotbed London, will be required to adopt the rules next year.)  To get a better understanding of the Calfornia law and the ongoing legal fights, we spoke with a number of lawyers and dealers. (Given the stakes involved in the lawsuits—and the fact that many have interests involved in these lawsuits–most sources asked to remain anonymous or speak only on background.) Below, we offer a short primer on the action.

How the Law Works

Talking with California dealers, there appears to be some confusion about the law. One dealer thought that, for a transaction to require royalties, the artist, seller and buyer all needed to reside in the state of California. Not so! The California Arts Council has a handy list of factors that must be met for resale royalties to take effect, including:

– The seller resides in California or the sale takes place in California.
– The work is sold during the artist’s lifetime or within 20 years of the artist’s death.
– The work is sold for a gross price of more than $1,000.
– The work is sold by the seller for more money than she or he paid.
– The artist at the time of the sale is a United States citizen or has been a California resident for at least two years.

The Enforcement Question

Talking to dealers at a variety of galleries, many noted that enforcement of the law has been irregular and sporadic. Some collectors selling work make a point of paying the royalty to artists, while others ignore it entirely. One dealer compared it to marijuana laws, which California residents–like all Americans–have been quite adept at skirting in various ways for decades. Since artists often do not know when one of their works has been sold privately between two parties, it is rather difficult for them to ensure that they are paid. “It’s one of the most ridiculous laws on the books,” one dealer argued.

Questionable Constitutionality

Reading that list of requirements, one will notice that the law says that a California seller is required to pay the royalty even if he sold the work at an auction house in New York. “It very well could be unconstitutional under the Commerce Clause,” one lawyer told us. The Constitution provides the power to regulate interstate commerce to the federal government, meaning that California may be overreaching. While states can tax residents’ income in other states, this would appear to go well beyond a tax. A recent article from the Bureau of National Affairs also argued that it could violate U.S. copyright law, in which “the owner of a copy of a creative work has the right to dispose of it without the authorization of, or payment to, the creator.”

The California Resale Royalties Law: a Primer