THE ART LAW FIRM Successful Strategies for Creative Endeavors 12100 Wilshire Boulevard, Suite 800 Los Angeles CA 90025 310 806-9450 www.artlawfirm.com In response to request for Comments re: Artist’s Resale Royalty by the USCO Alexandra Darraby I am a former gallery owner and art dealer in California representing artists from the USA and abroad; in that capacity I purchased and sold contemporary and modern artworks to—and on behalf of-- museums, private collectors and corporations. I currently represent living artists and artist estates whose artworks would be subject to a federal resale royalty, and some of whom were subject to California’s Resale Royalty Act. I was the attorney of record for the defendant in the first litigation to challenge the California law under the Copyright Act of 1976, among other grounds. A copy of the Brief opposing a remand from Central District Court of California to Los Angeles Superior Court is appended here. My work on the European resale royalty has been published abroad. A copy of the article is appended. Background: European Union Artist’s Rights in the Global Art Market Effective January 1, 2012, all twenty-seven EU Member States are required to implement the EU Art 1 Resale Right Directive no. 84 of 2001, imposing an Artist’s Royalty Right (“ARR”). Under the ARR, living artists, and their heirs and beneficiaries, are entitled to payment of a royalty on re-sales of contemporary and modern art, and certain transfers of art. The Directive mandates a maximum ARR of 2 €12,500 in all Member States for any single transaction. An artist’s right to collect monies based upon re-sales of artworks, alien to the common law concept of private property transfers, is a civil law principle known as droit de suite, an aspect of moral rights (droit moral). The Directive’s application of the droit de suite draws inspiration from Article 14ter of the Berne Convention for the Protection of Literary and Artistic Works, ratified by 185 states. See RICS The Arts Surveyor July 2012 http://www.artlawfirm.com/pdf/rics_july_2012.pdf 1 Directive 2001/84 of the European Parliament and of the Council of September 27, 2001 on the Resale Right for the Benefit of the Author of an Original Work of Art, 2001 O.J. (L 272). 2 Id. at art. 4 (establishing a sliding percentage scale relative to value, subject to the cap). 1 The scope and specificity of the objects that the ARR covers varies among Member States, and it is only triggered for certain works under certain conditions. Member States have had a decade to conform their law to the Directive. 3 On January 1, 2012, for example, the United Kingdom Intellectual Property Law, addressing implementation of the Directive, took effect. It extends the ARR to artists’ heirs and beneficiaries for up to seventy years after the artist’s death. An ARR is thus owed on every eligible resale, and on many non- commercial transfers, of art for the life of the artist, plus seventy years. A resale payment is owed even when the same work sells multiple times. A compulsory collective management system administers the royalties in most EU states, charging administration fees ranging from 8% to 20%. To be eligible for ARR in the United Kingdom, the Copyright, Designs, and Patents Act of 1988 must cover the artwork. In such instances, the applicability of ARR terminates when the copyright term expires. The Directive contemplates that the ARR may be accorded to living artists who at the date of sale are nationals of a European Economic Area state, or another non Member State, if that state has legislation that provides the ARR on reciprocal terms. The Directive further contemplates that the ARR applies to the sale of the work of a deceased artist if the artist lived in or was from a state that at the time of death contemplated such rights. American Law The California Resale Royalty Act is addressed in the appended Brief. The private market system—and commercial law the encompasses that system--that enabled the art market to flourish in the United States historically has not recognized residual rights to creators in personal property after title passes. The exception to that was enactment of the Visual Artist’s Rights Act of 1990, which acknowledges some non-economic post-sale interests for rights of attribution and modification. A federal resale royalty were it enacted would impose in effect a tax on sales of art, an amount that rises as the art appreciates for every resale. Collective Management The California law has not worked effectively on a voluntary basis, is not enforced by any governmental regulation, and collection efforts—absent voluntary responses--required recourse of the courts or ADR to recover monies owed thereunder. If a federal resale royalty were imposed, a collective management organization would be necessary to assure uniform and systemic collection of royalties. There are issues regarding collective management in the music industry, raising serious practical issues about at what point the costs of administration of such a royalty in the arts would undermine any meaningful financial advantage to the intended beneficiary of artists. The art resale is a singular transaction compared to the unlimited multiplicity of replay for musical works. Public Auction v. Private Sales 3 Intellectual Property, 2011, S.I. 2011/2873, (U.K.) (supplementing The Artist’s Resale Right Regulations, 2006, S.I. 2006/346, (U.K.). 2 Private sales of artworks through galleries and dealers have been largely exempt from resale royalties, because the collective management has secured the royalty in other nations through public auction, where the auction house adds the royalty to the bid, and remits to the CMO. The resale royalty system that operates only through public auction benefits only those name-brand, or so-called blue chip artists who have a secondary market that is lucrative enough for auction. The beneficiaries of such a law, if it were only imposed through the public auction system, would not be the artists referred to throughout the legislative histories and numerous articles about rewarding struggling and mid-level artists; the beneficiaries would be artists whose initial sales in the primary market were robust enough to sustain a profitable secondary market. In short, what percentage of contemporary artists benefit from a resale royalty collected only at auction? There are many public examples of artists’s dealers bidding on works at auction to protect against collapse of the artist’s primary market. The effect of a resale royalty on that calculus could further inhibit an artist’s market viability rather than enhance it. Amount of the Royalty In European nations the royalty is graduated and there is a maximum cap for any single sale. {see article appended} No royalty approaches the 7% proposed in the federal legislation, and in nations where economics of royalty have been studied, the royalty recommendations and implementations have not exceeded 5%. ALEXANDRA DARRABY Alexandra Darraby is a founder and principal of The Art Law Firm, a private practice. dedicated to arts, new media, technology and architecture. The IP segment of the practice includes preparing and negotiating international licensing agreements for traditional and digital media, technology agreements, design patents, trademark, digitizing archives and editions, international licensing and distribution, fair use analysis, internet, and foreign rights publications and clearances, including films, Broadway and theatrical productions Ms. Darraby is named a Delegate to the SIPO-US Bar Council in 2012. She is a Co Chair of IP for a Russian law initiative launchedunder the Innovation Subcommittee of the Russia-US Bilateral Presidential Commission. She served as the Co-Leader of the Joint Task Force with the Intellectual Property Section on Comments to China’s Copyright Law Revision filed with NCAC. She is the Immediate Past Chair of International Intellectual Property Rights Committee of the ABA. Ms. Darraby is founding Chair of the International Division of the Entertainment Forum, Vice Chair of the Europe Committee, and immediate past Division Chair of Arts & Museums. Ms. Darraby is the author of the comprehensive legal treatise ART, ARTIFACT, ARCHITECTURE & MUSEUM LAW, VOLUMES 1 & 2 (16th ed. 2012) published by Thomson Reuters West., and the upcoming Guide to Digital Art and New Media, Admissions include the Court of International Trade, the California Supreme Court, federal districts in California, the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the Federal Circuit. The New York Times, the LA Times, the New York Law Journal, The World, the BBC, MSNBC, newsweek.com, National Public Radio, the Smithsonsian, Art & Auction, Heritage Magazine, and Bloomberg Wealth Management Magazine have interviewed or quoted her. Her byline appears in dozens of periodicals. She graduated summa cum laude, Phi Beta Kappa with a B.A. from UCLA, received her J.D. from Boalt Hall and was awarded an M.A. on East Asia from Berkeley. 3 1 THE ART LAW FIRM ALEXANDRA DARRABY (SBN 089295) 2 12100 Wilshire Boulevard, Suite 800 Los Angeles, California 90025 3 Telephone: (310) 806-9450 4 Facsimile: (310) 943-0435 Email: [email protected] 5 GREENBERG TRAURIG, LLP 6 GREGORY A. NYLEN (SBN 151129) 7 2450 Colorado Avenue, Suite 400E Santa Monica, California 90404 8 Telephone: (310) 586-7700 Facsimile: (310) 586-7800 9 Email: [email protected] 10 Attorneys for Defendant 11 DEAN VALENTINE 12 13 UNITED STATES DISTRICT COURT 14 CENTRAL DISTRICT OF CALIFORNIA 15 WESTERN DIVISION 16 17 BABY MOOSE DRAWINGS, INC., CASE NO. CV 11-00697 JHN (JGCx) 18 Plaintiff, 19 DEFENDANT DEAN VALENTINE’S vs. OPPOSITION TO PLAINTIFF’S 20 MOTION FOR REMAND 21 DEAN VALENTINE, and DOES 1 through 10, Date: March 21, 2011 22 Time: 2:00 p.m. Defendants. 23 Courtroom: 790 24 Hon. Jacqueline H. Nguyen 25 [Request for Judicial Notice and 26 Declarations of Amber Noland and Robert Younger filed and served 27 concurrently herewith] 28 4 1 I. INTRODUCTION 2 This case involves a single claim for money involving preemptive federal 3 constitutional rights brought by a corporate entity on behalf of an artist demanding resale 4 royalties for sales of artworks occurring in New York and other places, based upon a 5 California state statute commonly referred to as the California Resale Royalty Act, 6 codified at California Civil Code section 986 (the “Royalty Act”). The statute on its face 7 purports to provide an artist and heirs, for a period up to twenty years after the artist’s 8 death, with a five percent resale royalty for profitable sales of certain types of original 9 artwork in the worldwide secondary art market, the term for the resale art market. 10 The artwork that is the sole subject of the Royalty Act is copyrighted work 11 federally protected and regulated under current statutory federal copyright law codified in 12 Title 17 of the U.S. Code and the United States Constitution, the basis upon which 13 federal statutory copyright is sourced and predicated. Neither federal copyright law, nor 14 any of the international copyright conventions and treaties which the United States has 15 joined or adhered to in the last 30 years amending Title 17—nor any other federal 16 constitutional theory—supports the validity, legitimacy, or enforceability of the Royalty 17 Act. In fact, Defendant respectfully submits, as demonstrated below, that federal law 18 mandates federal preemption of this California law. 19 California is the only state among the 50 states requiring the sellers of a work of 20 “fine art,” defined arbitrarily in the Royalty Act as an “original painting, sculpture, or 21 drawing, or original work in glass” (hereafter “artwork”), to pay the artist who created 22 the work (or artist’s heirs or assignee) a five percent resale royalty on the sale price, a key 23 term undefined in the statute, whenever the artwork is resold, and at each and every time 24 the artwork sells, wherever in the worldwide secondary resale market that the resale 25 occurs, and regardless of how many times the artwork sells and resells within the artist’s 26 lifetime plus twenty years. No waiver of the royalty is permissible, and any attempt by 27 sellers to obtain a waiver from the artist results in mandatory increase in the amount of 28 the royalty in excess of the 5 percent. (It is the seller’s financial loss if the artwork loses 5 DEFENDANT DEAN VALENTINE’S OPPOSITION TO PLAINTIFF’S MOTION FOR REMAND Error! Unknown document property name. 1 value or cannot be sold for a profit). This Royalty Act imposes on California residents— 2 and according to Plaintiff, only California residents—unprecedented financial obligations 3 of limitless geographical scope for sales in the global markets works of original 4 authorship that no other American or foreign seller of copyright work incurs or bears. 5 Furthermore, the Royalty Act: (1) is expressly preempted by, and contravenes, the 6 federal copyright First Sale Doctrine, created by judicial law and codified in Title 17 of 7 the U.S. Code precisely to protect the Defendant’s resale rights in the artworks at issue; 8 (2) is expressly preempted by Title 17, and abrogates or impairs, the distribution right, an 9 exclusive right under federal copyright law; (3) is preempted by Title 17, and 10 impermissibly interferes with the mandate of federal copyright law to establish and 11 maintain national royalty rates and royalty fee schedules for works of original authorship; 12 (4) is preempted by Title 17, and contravenes the obligations of the United States as a 13 sovereign member in the Berne Convention for the Protection of Literary and Artistic 14 Works, to which the United States joined, and adhered, effective in 1989; (5) is 15 preempted by Title 17, in that it arbitrarily imposes a royalty on only certain original 16 works of authorship and denies the royalty to other original works of authorship that do 17 not qualify under the state statutory definition of “fine art;” (6) is preempted by Title 17 18 and the Contracts Clause under the U.S. Constitution, and denies California residents 19 their rights to contract freely for original works of authorship, available to each and every 20 other American in the other forty-nine States of the United States; (7) is preempted under 21 the Supremacy Clause of the U.S. Constitution; (8) is preempted under the Commerce 22 Clause of the U.S. Constitution, and circumscribes and restricts, constitutionally 23 protected interstate and international commerce; (9) is preempted, in that it imposes 24 royalty fees and charges upon exports of works of original authorship, and certain 25 categories of artwork, and interferes with constitutional federal powers; and (10) is 26 preempted because it denies equal protection to certain artists who create original works 27 of art that do not satisfy the State-prescribed definition of “fine art,” and discriminates 28 against sellers and transferors of artworks and works of original authorship who reside in 6 DEFENDANT DEAN VALENTINE’S OPPOSITION TO PLAINTIFF’S MOTION FOR REMAND Error! Unknown document property name. 1 California from those in the other forty-nine States of the United States.4 2 According to the Plaintiff, the royalty is imposed on California sellers when they 3 sell works of original authorship that qualify as artwork under the Royalty Act for all 4 sales in California or anywhere else in the world if the seller resides in California. For 5 example, a U.S. citizen who is now an expatriate living in Sri Lanka may use the State 6 statute to extract a five percent royalty from the California seller of copyrighted artwork 7 for a resale made at an auction in the Mid-East, where the auction seller is a London- 8 based auction house. No one else in the chain of sale bears the burden of paying a 9 copyright royalty on resale of artwork other than the Californian. Defendant hopes this 10 Court will agree that such a preposterous result—but an actual outcome under the 11 Royalty Act—is preempted by federal copyright law and federal law. The concept of 12 federal copyright preemption, and both express and implied federal constitutional 13 preemption, is to avoid the hegemony of any one State over the federal constitutional 14 mandates of federal copyright law. This is precisely why Congress enacted the 15 Copyright Act of 1976, to federalize copyright law and to avoid separate schemes 16 covering statutory copyright and common law. In so doing, the federal constitutional 17 protections were made applicable nationwide to all works of original authorship, and to 18 the entire United States—as copyright is both constitutional and statutory—and the 19 instant claims by Plaintiff are within the complete preemptive scope of copyright. 20 The California Legislature ignored the warnings of California Legislative Counsel, 21 California Department of Finance, California Board of Equalization, and leading and 22 prominent California lawyers, law professors, academics, economists, and others who 23 opined that the Resale Act was preempted by Title 17 and otherwise unconstitutional. 24 Even Alan Sieroty, the author of the royalty bill, who—despite objection from virtually 25 26 4 Although not discussed herein as a ground for opposing remand, Defendant does not 27 waive his rights to argue at a later time that Plaintiff’s claims are preempted by the U.S. Constitution, including the commerce clause and contracts clause, for the reasons set 28 forth above, and that the Royalty Act is unconstitutional for a host of other reasons. 7 DEFENDANT DEAN VALENTINE’S OPPOSITION TO PLAINTIFF’S MOTION FOR REMAND Error! Unknown document property name. 1 every sector, persisted in pushing passage—conceded the Royalty Act might very well be 2 preempted by the Copyright Act of 1976, as discussed below. 3 Defendant respectfully submits that federal preemption law is the direct judicial 4 response to avoid such idiosyncratic state intervention on matters of federal copyright 5 regulation (Title 17 preemption protects copyrighted material from regulation one way in 6 one state, and a different way in another), and to protect against arbitrary, unequal and 7 disproportionate burdens and obligations imposed by states on works of original 8 authorship. 9 The Royalty Act is a far-reaching state statute that for no discernable reason favors 10 and benefits one class of copyrighted materials—“fine art,” as arbitrarily defined by the 11 Royalty Act, that sells for more than $1000 per object—over other original copyrighted 12 works in other media or that sell for less. The result as a practical matter is that a small 13 number of plaintiffs’ lawyers have used the Royalty Act to create their own cottage 14 industry by wielding the law as a club to extract money from a limited group of owners 15 of copyrighted artwork who are unfortunate enough to live in California, and who have 16 been the sole targets and financial obligees to pay a royalty on worldwide art resales and 17 finance global art markets. 18 Since repeal of the Copyright Act of 1909, the Royalty Act has gone unchallenged 19 for “fine art” sales under the Copyright Act of 1976. Defendant is a California resident, a 20 businessman and recognized art collector, who on successive occasions under the Resale 21 Act has made documented royalty payments in excess of $50,000.00 to the 22 internationally successful artist, Mark Grotjahn, whose royalties from sales of his 23 artworks are at issue. But after being sued in this action by the Plaintiff—a company 24 controlled by Mark Grotjahn, Defendant respectfully requests that it is time for a federal 25 District Court to revisit federal preemption of the Royalty Act under Title 17, which he 26 submits is expressly and completely preempted by the Copyright Act, an Act that was not 27 in effect at the time of the first—and only—legal challenge of this kind more than thirty 28 years ago. Further, Defendant submits that federal preemption applies under the many 8 DEFENDANT DEAN VALENTINE’S OPPOSITION TO PLAINTIFF’S MOTION FOR REMAND Error! Unknown document property name. 1 additional grounds raised in the Notice of Removal and discussed below. 2 II. SUMMARY OF ALLEGATIONS IN PLAINTIFF’S COMPLAINT 3 Plaintiff Baby Moose Drawings, Inc. (“Plaintiff”) alleges it is the assignee of artist 4 Mark Grotjahn’s “rights to collect royalties” from Defendant pursuant to the Royalty 5 Act. Complaint ¶ 1 (emphasis added). Plaintiff alleges that Grotjahn created three 6 original works that were sold to Defendant by unspecified parties on unspecified dates— 7 an original drawing created in 1997, an original oil painting created in 2002, and an 8 original oil painting created in 2005. Id. at ¶¶ 6-8. Years after these works were created, 9 Plaintiff now seeks a 5% royalty under the Royalty Act in connection with Defendant’s 10 resale to third parties of the works at issue. Id. at ¶¶ 10-11. In essence, the sole 11 allegation by the Plaintiff is that he is owed money by the Defendant in connection with 12 the sale of copyrighted artwork. There is no redeeming creative motivation for the 13 lawsuit, cultural or social issue at stake, or political or judicial interest sought by 14 Plaintiff. Indeed, the corporate Plaintiff may have been formed by the artist for the sole 15 purpose of acting as his collection agent. And as discussed in the attached declarations of 16 Robert Younger and Amber Noland, Plaintiff has already been paid the royalties it seeks 17 from Defendant in connection with at least two of the three artworks at issue in this case 18 (and Defendant intends to seek summary judgment on that basis as soon as possible). 19 Yet Plaintiff inexplicably continues to prosecute this action, and is even audacious 20 enough to ask for attorneys’ fees on this motion. Plaintiff’s request and this motion 21 should be denied in their entirety. 22 III. THE CONTENTIOUS HISTORY OF THE RESALE ROYALTY ACT 23 The Royalty Act bill was almost universally opposed, and veto was urged, 24 expressly and repeatedly, by virtually every segment of law and arts experts, including 25 lawyers, economists, auction houses, academicians, and government agencies, including 26 the Legislative Counsel of California to the California Assembly, the California 27 Department of Finance, and prominent California and national museum directors, arts 28 professionals, local and national trade associations and dealers. The legislative analysis, 9 DEFENDANT DEAN VALENTINE’S OPPOSITION TO PLAINTIFF’S MOTION FOR REMAND Error! Unknown document property name. 1 as well as oral and written testimony, warned and opined about the preemptive force of 2 federal law, including Section 301 preemption, under the Copyright Act of 1976. 3 Sotheby Parke Bernet, Inc., now Sotheby’s, emphasized preemption of the resale 4 royalty, and urged veto of the proposed royalty bill, stating that “[w]e believe that there 5 are grave doubts as to the Federal constitutionality of this [bill]…we submit that clearly 6 is a field for pre-emptive Federal control rather than conflicting state legislation….” 7 Letter of John Marion, President, Sotheby Park Bernet, Inc., to Hon. Edmund G. Brown, 8 Jr., at 5-6 (Sept. 17, 1976) (emphasis added) [LRI at 65-70] (Exh. A to Request for 9 Judicial Notice [“RJN”])]. 10 The Legislative Counsel identified the international sweep of the proposed Royalty 11 Act and admonished then-Governor Edmund Brown: “[t]he power of Congress to 12 control foreign commerce … is exclusive and plenary: as an exclusive power, its 13 exercise may not be limited, qualified or impeded to any extent by state action.” Report 14 on A.B. 1391 from George Murphy, Legislative Counsel, to Hon. Edmund G. Brown, Jr. 15 at 2 (Sept. 14, 1976) [LRI at 35] (Exh. B to RJN). 16 Similarly, and with equal vehemence, the California Department of Finance 17 recommended veto of the proposed bill creating the resale royalty, reciting that only a 18 “small select group of persons [artists would] be protected by State, with no significant 19 benefit to taxpayers; Potential entanglements involving state agencies in what is 20 essentially private contractual matters.” Enrolled Bill Report, AB 1391, at 1 (Aug. 31, 21 1976) [LRI at 41] (Exh. C to RJN). The economic analysis continues: “[T]he artist 22 originally was compensated at what he himself accepted as a fair price for his labors at 23 the time of the [original] sale[and] as [the artist’s] reputation grows, new 24 works…demand a higher price.” In fact, Defendants like Mr. Valentine who buy the 25 artwork of the artist create the very market demand that raises the price of the artwork, 26 and as the California Department of Finance explained, the royalty provision targets 27 adversely the very buyers who initially support the viability of the same artist’s market. 28 10 DEFENDANT DEAN VALENTINE’S OPPOSITION TO PLAINTIFF’S MOTION FOR REMAND Error! Unknown document property name.