Inside the American Royalties Too Act: Like Composers, Visual Artists May Soon Get Royalties on Sales Made in the U.S. [Updated]

But are they a good thing?

RESOLD1A resale royalty is a percentage of the price of a work of art that is “resold” a second or subsequent time, the money payable to the living artist or to his or her heirs. France was the first nation to adopt a resale royalty provision (known internationally as droit de suite), in 1920. Now, according to the U.S. Copyright Office, more than 70 nations around the world have some form of artist resale royalty statute.

The United States may be next. New York Democratic Representative Jerrold Nadler recently introduced the American Royalties Too Act, which is modeled on current laws throughout Europe and would establish a 5 percent “resale royalty” on secondary or subsequent sales at auction of artwork for more than $5,000, with that money going to the individual artists or their heirs.

The act was drafted by Robert Panzer, executive director of VAGA, and Theodore Feder, president of the Artists Rights Society, both New York City-based organizations that collect licensing fees for works by their member artists. The two organizations would likely move into the realm of collecting resale royalty fees if and when the legislation is enacted. Mr. Panzer noted that fees from resale royalty payments would “exceed considerably what we do in licensing.”

Resale royalties on art aren’t new in the U.S. The state of California enacted a five percent resale royalty statute in 1976, although its effectiveness has been hampered by the difficulty of enforcing a law that applies to only one state, and a challenge to the statute in 2012 resulted in a ruling that it was unconstitutional, in violation of the Commerce Clause of the U.S. Constitution. Similar initiatives were defeated in New York, Pennsylvania and Ohio during the 1980s.  

Proponents view resale royalties as both a fairness issue and a system of compensation that has proven itself to be a boon to artists without becoming a drag on the overall art market.

Artists often sell their work cheaply at the outset of their careers. When that work rises in value, it is usually a result of the artist’s ongoing efforts. The artist has, in effect, increased the value of his or her work for the benefit of the buyer who has become enriched at the artist’s expense.

The U.S. Copyright Office conducted a study of the benefits and drawbacks of artist resale royalties, published late last year, coming out in support of the Nadler bill and concluding that “in general, visual artists do not share in the long-term financial success of their works. Instead, the financial gains from the resale of their works inure primarily to third parties such as auction houses, collectors and art galleries.”

By dint of receiving a check, artists will know where their works are, who owns them and their most recent price.

Some artists have taken resale royalties into their own hands. The artist Hans Haacke, for instance, demands that collectors sign a contract for every work of his that they buy, requiring them (and all subsequent owners) to pay him a 15 percent resale royalty on any sales. In effect, Mr. Haacke claimed, the contract says “to a potential buyer, ‘If you don’t want to play ball with me and your sole interest in buying my work is to have complete control over everything in it, including whatever profits could be gained from it, and if you are not willing even to share a few percent of profit with me, I don’t want to have anything to do with you—I don’t want you to be the custodian of my work.’”

Beyond the theoretical questions, resale royalty laws have not damaged the market for contemporary art in the 29 countries that have them. The U.K.’s law, which was instituted in 2006 and requires that a percentage of the profit of a secondary market sale of art to be paid to the creative artist or, since 2011, to a deceased artist’s estate, was supposed to have a “corrosive effect” on the British art market, according to Anthony Browne, executive director of the British Art Market Federation. Buyers would stop buying contemporary artists, because they would refuse to pay the royalty at some point in the future; British sellers of this art would look to sell in Switzerland or the United States, where there is no royalty to be paid. “Over the long haul, it will be very damaging to the art market here and to artists,” he said at the time the law was being adopted.

(The U.K. law, which also affects galleries, is set on a sliding scale, based on the sale price of the artwork. Pieces up to 50,000 euros are assessed 4 percent, from 50,000 euros to 200,000 euros 3 percent, from 200,000 euros to 350,000 euros 1 percent, half of 1 percent for items from 350,000 euros to 500,000 euros and 1 quarter of 1 percent for objects in excess of 500,000 euros. The maximum amount of resale royalties payable, however, is 12,500 euros, or $17,000.)

But Mr. Browne’s fears have not been realized. A spokesman for Christie’s noted that “the 12,500 euro cap really wouldn’t have any effect” on the people who buy at the highest prices.

Similarly, many U.K. dealers have not found the resale royalty law a hindrance on their trade. “Sales have been as healthy as before the law came into effect,” said Glenn Scott-Wright, director of London’s Victoria Miro Gallery. “Clients haven’t indicated that they were unwilling to buy because of the royalty. In fact, there hasn’t really been much discussion of the law.”  

Still, opponents of resale royalties take the position that what may seem fair to the artist is unfair to the collector and a drag on the art market and, eventually, will hurt those same artists.

The royalties require that sellers pay a certain percentage to the artist regardless of whether or not the work of art sold at a profit. According to Gilbert Edelson, the former administrative vice president of the Art Dealers Association of America, “The collector, in essence, would go out, take a chance on the artist, support the artist, pay the money, lose money and then pay something to the artist in addition. I don’t quite understand why that is fair.”

Contemporary art is the riskiest area of the entire art market, with 99 percent of all works by living artists declining in value and never achieving a secondary market. And art collectors are often also reluctant to have the prices for which they sold works made public, as they would become potential targets of robbers and sales agents.

Viewing resale royalty as an additional sales “tax,” many collectors might decide not to buy works by younger, contemporary artists. There would be no incentive for artists to create more works, opponents of the royalties say, and perhaps a disincentive, as collectors would look to pay less for first sales. Additionally, sellers are likely to raise the resale prices in order to cover the royalty. And opponents dispute the view that this law has been an unqualified success. In most of the 70-plus countries—Belgium, France, Germany, Hungary and Spain are the exceptions—the law is ignored or not enforced, and in others, the administrative costs of ensuring compliance are greater than the revenues collected.

The Nadler legislation, which targets only auction houses, creates its own loopholes, since sales at art galleries and smaller auctioneers would be exempt. Some of the art world’s heaviest hitters (Christie’s, Sotheby’s and the Association of Art Museum Directors, among others) have publicly announced their opposition to artist resale royalties.

And artists couldn’t waive the royalty. All of the other nations with this law—and all discussion in the United States of adopting this legislation—have written it up as an “inalienable” right that the artist is legally unable to sign away. (Proponents believe that artists otherwise might be pressured by strong-arming collectors to waive their rights.) 

Not all artists endorse the concept of resale royalties, many of them believing it adds a layer of bureaucracy on the art market without providing much help to the artists who need money. Sculptor Anthony Caro and painter David Hockney are among a group of artists who signed a petition against instituting a resale royalty when it came before Parliament. By email, Mr. Caro said that he is “concerned that the scheme would be terribly complicated to administer and just create more bureaucracy. It will mainly benefit artists who are already successful.”

“Who stands to benefit?” the American painter Jules Olitski asked in an interview before his death in 2007. “For the most part, artists who are least in need of more money than they already have. In my opinion, the resale provision will prohibit rather than encourage the purchase of works of art, thereby making life, if anything, more difficult for those artists most in need.” During a Congressional hearing on the subject in 1989, artist Elaine de Kooning called resale royalties “a Fat Cat provision, which would benefit very few artists, those least in need of help. … The majority of artists who barely eke out a living (if they’re lucky) from the sale of their work would not be helped by this law in any way. It would most certainly discourage collectors from buying art.”

[Update: 2/27/14] This article has been amended to reflect the following corrections. The original article referred to the new legislation as the “Equity for Visual Artists Act” in the headline and elsewhere. That bill was introduced in 2011; the new legislation is called the “American Royalties Too Act.” The article also stated that artists and their heirs could claim a 7 percent royalty on art reselling for more than $10,000 at auction. The proposed royalty is 5 percent, and the baseline is $5,000. Additionally, the language has been corrected to reflect that the new law would not just apply to major auction houses. While the 2011 legislation would have only affected houses generating $25 million or more in fine art auction revenue annually, the present bill sets the applicability threshold at $1 million or more.