In brief

Bleak Outlook for California’s Resale Royalties Act

california-state-building

The California state capitol in Sacramento.
Via Wikimedia Commons.

A three-judge panel has been reviewing the California Resale Royalties Act in the 9th Circuit court of appeals, and Courthouse News does not have high hopes that the law will survive the suit. The act provides artists with five percent royalties from the resale of their works.

The current case was initially filed in 2011 by a group of artists including Chuck Close and the heirs of California sculptor Robert Graham. The artists are suing companies including Sotheby’s, Christie’s, and eBay for the royalties they should have received from previous sales transactions involving in-state sellers or auction houses.

A 2012 ruling by U.S. District Judge Jacqueline Nguyen struck down the law as a constitutional violation of the commerce clause for attempting to control business in other states. The judge also found that the act could not stand within California, writing that “were the court to merely to sever the extraterritorial provisions of the statute, it would create a law that the legislature clearly never intended to create.”

Now, the artists are working to convince the panel of judges otherwise, arguing that the state law should supersede the commerce clause, and that collecting the royalties could also be interpreted as a tax on an out-of-state business.

At least one judge, Ferdinand Fernandez, doesn’t seem to be buying either argument. During the proceedings, he claimed that the royalties are “only a tax in somebody’s dreams.” He summed up the prosecution’s position on the commerce question derisively, saying “the artist is outside the state, the buyer’s outside state, the property’s outside the state,” but “as long as the resident is in California, you can do anything you want.”

The artists’ attorney, Eric George, offered a rebuttal, reminding the panel that “when an out-of-state company has a presence in California—as Sotheby’s does here, as Christie’s does here—they are subjected to California’s law.”

The defense for Sotheby’s likened the attempt to garner resale royalties to California collecting sales tax when state residents buy cigarettes in Nevada. Christie’s lawyers also denounced the law, arguing that, as written, it would collapse the art market in California because sellers would go out of their way to avoid the royalty.

Although Congress is considering a bill, American Royalties, Too, that would extend resale resale royalty rights to artists nationwide, a recent piece by the New York Observer finds that similar legislation in the UK has not been as beneficial to artists as expected.