In what will be a major case to shake up the art world, the nation’s only droit de suite statute has again been eviscerated as a federal appeals court has found the resale royalty right only applies to a narrow timeframe aspect of the statute. On July 6, 2018, the Court of Appeals for the Ninth Circuit held in Close v. Sotheby’s, Inc.,[1] that the resale royalty right is only applicable between the effective date of the California Resale Royalties Act (CRRA) of January 1, 1977 and the effective date of the Copyright Act of 1976 (1976 Act) of January 1, 1978. Any resale claim after January 1, 1978 is expressly preempted by the 1976 Act.
The facts are as follows.
Plaintiffs-artists Chuck Close, Laddie John Dill, and the Sam Francis and Robert Graham estates sued two art auction houses, Sotheby’s and Christie’s, and an online reseller, E-Bay,[2] in individual lawsuits which alleged violation of the CRRA for failure to pay royalties to the artists or their estates for artworks sold in California or at auction by California sellers. The defendants moved to dismiss because the CRRA was preempted by the 1976 Act, as well as the 1909 Copyright Act (1909 Act).
Section 986(a) of the CRRA reads:
(a) Whenever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller’s agent shall pay to the artist of such work of fine art or to such artist’s agent 5 percent of the amount of such sale. The right of the artist to receive an amount equal to 5 percent of the amount of such sale may be waived only by a contract in writing providing for an amount in excess of 5 percent of the amount of such sale. An artist may assign the right to collect the royalty payment provided by this section another individual or entity. However, the assignment shall not have the effect of creating a waiver prohibited by this subdivision.
(Emphasis added.)
986(a) went through several rounds of litigation. The first case went to the Ninth Circuit, and an en banc panel determined that this provision was unconstitutional for violating the dormant Commerce Clause.[3] This is because the CRRA requires payment of royalties to the artist for a sale if “the seller resides in California or the sale takes place in California.” As written, the statute regulates both sales that occur within California and sales that occur if the seller is a resident of California. This would mean a seller with part-time residences in both California and New York could purchase a painting in a sale in New York from an artist residing in North Dakota, and who then goes on to resell that painting to another person in New York. The CRRA would require royalty payment to the North Dakota artist even though no specific transaction occurred in California.[4] Because the U.S. Supreme Court denied certiorari, this aspect of the CRRA is now void.
The dormant Commerce Clause issue aside, that en banc panel severed the unconstitutional aspects of the CRRA from the rest of the statute, which was still deemed valid for purposes of allowing the further claim by Close, Dill, and the Graham and Francis estates to proceed through litigation. Hence, the issue in this particular rendition of the case is whether either the 1909 or 1976 Copyright Act has preempted the CRRA.
The current Ninth Circuit panel’s opinion dealt with two copyright preemptions: express and conflict. Express preemption controls the timeframe after the 1976 Act’s enactment as to whether it preempts any CRRA claim from 1978 to the present. Conflict preemption controls the timeframe between the CRRA’s enactment and the 1976 Act’s enactment (i.e., the calendar year 1977).
Section 301(a) of the 1976 Copyright Act (17 U.S.C. §301(a)) reads:
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
In determining express preemption, the Ninth Circuit panel, composed of Judges Boggs, Bybee, and Watford, with Judge Bybee writing for the court, used its two-prong test for determining whether a state law was preempted by §301(a). First, the subject matter of the state law must fall within copyright law as codified in 17 U.S.C. §102 and §103 (i.e., Copyright Act). Second, if yes, the court must determine if the rights are equivalent between those established by the state law and those contained in §§102-103.[5]
As to the first prong, the panel had no doubt that the subject matter between the Copyright Act and the CRRA were the same, since both statutes referred to protection of “pictorial, graphic, and sculptural works” and “paintings, sculptures, drawings, or works in glass,” respectively.
As to the second prong, the panel also had no doubt rights asserted by both statutes were the same because, as Judge Bybee wrote, both discuss ramifications of the first sale doctrine. The first sale doctrine allows a first buyer to obtain all interests in that item of original work from the artist after he has bought that item. Specifically, the first sale doctrine concerns the author’s distribution right, a part of the bundle of rights enumerated under copyright law. He noted that the first sale doctrine was first codified in the 1976 Act’s precursor, the 1909 Copyright Act. In fact, §109(a) provides:
The owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.[6]
He noted:
The practical effect of this language is to significantly circumscribe a copyright owner’s exclusive distribution right only to the first sale of the copyrighted work” because once the copyright owner places a copyrighted item into the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution. (Quotations omitted.)[7]
Judge Bybee observed equivalence between the Copyright Act’s distribution right under §106(a) and the CRRA’s resale royalty right:
The two rights differ in that one grants artists the right to receive a percentage payment on all sales of artwork after the first, while the other grants artists the right to receive full payment on the first (and only the first) sale. But, at root, both concern the distribution of copies and define artists’ right (or lack thereof) to payment on downstream sales of those copies.[8]
He noted that this equivalence in the distribution right diverged – the federal Copyright Act expanded the distribution right, while the CRRA limited it. The fact was, he continued, the CRRA did not merely limit the distribution right, but it “fundamentally reshapes the contours of federal copyright law’s existing distribution right.”[9] This is contrary to the provisions of §301(a). As a result, any claim under CRRA arising after the effective date of January 1, 1978 – the effective date of the 1976 Copyright Act – are barred.
In determining conflict preemption, Judge Bybee’s opinion goes off track. He makes an ineffectual rationale that because the 1909 Act, unlike the 1976 Act, does not contain an express preemption provision (i.e., §301(a)). However, he tries to undermine the defendants’ argument that the Morseburg holding has been implicitly overruled. In Morseburg,[10] the Ninth Circuit upheld the CRRA for an art sale made in 1977 (pre-1976 Act), holding that the 1909 Act did not preempt the CRRA, and that neither law were in conflict with each other.[11] So, in other words, the first sale doctrine and a resale royalty law can permissively coexist. However, Morseburg only dealt with the 1909 Act, and not the current 1976 Act in which the current case is being decided under. Judge Bybee simply noted that the 1909 Act does not expressly provide for preemption and Morseburg runs parallel to the 1909 Act. This, he stated, is not “clear irreconcilability” required for overruling a prior circuit precedent. His rationale here is a bit inarticulate. The U.S. Supreme Court decided Bobbs-Merrill Co. v. Straus in 1908, first recognizing the first sale doctrine, which was then codified into the 1909 Act. Bobbs-Merrill has been good law since 1908, and its holding – the first sale doctrine – is the primary legal principle being attacked at the core of the CRRA. Taken further, Bobbs-Merrill should have implicitly preempted CRRA if a legal challenge was ever made. Rather than dither back and forth between Morseburg and copyright law, Judge Bybee should have overruled Morseburg; the rest of his opinion infers that the first sale doctrine overrules the CRRA so he should have maintained this consistency with both the law and his ruling. Notwithstanding, Judge Bybee found that the 1909 Act did not preempt the CRRA, so any CRRA claim made in between the CRRA and the 1976 Act’s enactment dates were possibly valid, and remanded for further proceeding.
The defendants made a final constitutional argument, that the CRRA effected an unconstitutional taking in violation of the Fifth Amendment. They argued that the Copyright Act grants artists property rights to their works until they have sold those works. Afterwards, the artist no longer retains a proprietary interest. The CRRA constitutes a taking by forcing the royalty requirement on resellers. Judge Bybee equated droit de suite legislation, like the CRRA, to rent control laws because, in some respects both effect a wealth transfer from one class to another. However, this alone is not enough for a government taking.[12] As such, he found the Takings Clause argument unavailing.
Droit de suite is the mandatory royalty imposed on secondary sales of artwork. It is the economic correlative of moral rights, both of which were introduced and are common in European civil law traditions.[13] However, in the U.S., droit de suite has faced a tough ride, largely because the first sale and exhaustion doctrines are now enshrined in American jurisprudence in support of a public policy favoring market-oriented principles.[14] In Kirtsaeng, the U.S. Supreme Court held that the first sale doctrine applied to exhaust all copyright rights made international to the U.S.[15] Likewise, in Impression Products, the U.S. Supreme Court extended the first sale doctrine to patent law, applying the doctrine to exhaust all patent rights in the use of a particular item of commerce made internationally.[16] The Close decision by the Ninth Circuit is, therefore, consistent with American first sale doctrine principles. There is, of course, a stated American legal policy to prevent restraints on alienation of chattel,[17] and both the first sale doctrine and this ruling together uphold that policy.
On the other hand, many visual artists – painters, sculptors, craft makers, and photographers – typically do not receive downstream royalties after their work is sold to the first buyer, which is unlike composers, filmmakers, musicians, and writers, who can usually obtain royalties from copyright interests in derivative rights (e.g., screenwriting or licensing). The first sale doctrine (17 U.S.C. §109) disallows visual artists any further monetary interest in that particular item once that first sale is transacted. The CRRA was meant to bridge this gap in copyright law for visual artists.
This case is a likely candidate for a petition of writ of certiorari to the U.S. Supreme Court by either party. We will continue to follow it and report back any developments on the blog.
[1] ___F.3d___ (9th Cir. 2018) (slip op.), aff’g-in-part, rev’g-in-part and remanding, Estate of Graham v. Sotheby’s, Inc., 178 F. Supp. 3d 974 (C.D. Cal. 2016).
[2] E-Bay was dismissed as a defendant by the district court, because it was not in existence in 1978 at the time when both the CRRA and the 1976 Act coexisted post-enactments. The dismissal was affirmed by the Ninth Circuit panel.
[3] See Sam Francis Foundation v. Christie’s, Inc., 784 F.3d 1320, 1324 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 795 (2016), aff’g Estate of Graham v. Sotheby’s, Inc., 860 F. Supp. 2d 1117 (C.D. Cal. 2012).
[4] See Sam Francis Found., 784 F.3d at 1323.
[5] See Maloney v. T3Media, Inc., 853 F.3d 1004, 1010 (9th Cir. 2017).
[6] Close, supra (slip op at 17).
[7] Id.
[8] Id. (slip op. at 18).
[9] Id. (slip op. at 19).
[10] See Morseburg v. Balyon, 621 F.2d 972 (1980).
[11] 621 F.2d at 978.
[12] See Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223 (1986).
[13] See, e.g., Stephanie B. Turner, The Artist’s Resale Royalty Right: Overcoming the Information Problem, 19(2) UCLA L.R. 330 (2012).
[14] See, e.g., David E. Shipley, Droid de Suite, Copyright’s First Sale Doctrine and Preemption of State Law, 39 Hastings Comm. & Ent. L.J. 1 (2017).
[15] See Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 133 S. Ct. 1351, 1358 (2013).
[16] See Impression Prods., Inc. v. Lexmark Int’l, Inc., 581 U.S.___, 137 S. Ct. 1523, 1532-33 (2017).
[17] See Kirtsaeng, 568 U.S. at 538, 133 S. Ct. at 1363.