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ARTIST’S RESALE ROYALTY RIGHTS

This article discusses a little known California law.  It’s called the “Resale Royalty Act” (California Civil Code Section 986). 

What this law essentially states is that when a person purchases fine artwork and then resells it for more than $1,000, such seller must pay five percent (5%) of the “gross sales price” to the artist who created the artwork.  If the seller can’t locate the artist within 90 days, the royalty must be deposited with the California Arts Council. 

Example: Let’s say that you bought from an art gallery an original painting created by artist John Pierre for $1,200.00.   Then, 5 years later, you resell the same painting for $5,000 to a private party named Jane Dole.  You must pay the artist, John Pierre, 5%, that is, $250 from the sale.  Let’s further assume that, 10 years later, Jane Dole resells the same painting for $100,000 to an art collector, Fredrick Kent.  Jane Dole must pay artist, John Pierre, a 5% royalty, that is, $5,000.00.  In other words, each time the art is resold, the artist is entitled to be paid a royalty if the art appreciates value.  If Mary cannot locate, then the royalty must be deposited with the California Arts Council. 

Stated succinctly, an artist in California is entitled to compensation every time the work is resold if certain conditions are met.  Thus, this resale law applies only when ALL six of the following conditions occur:

1. The art is “fine art” (discussed below);

2. The seller must reside in California;

3. The sale must occur in California;

4. The sale price must be higher than $1000;

5. The selling price must be higher than what the seller originally paid for it; and

6. The artist, at the time of resale must be either as United States citizen or residing in California for more than 2 years. 

Trend Setter: California was the first state in the U.S. to enact this hotly contested law on January 1, 1977.  However, this is a well-established legal right in many other countries.

What’s the rationale for this law?   Answer: “Droit Moral”, a French term meaning “Moral Law.”  This is a European concept that ensures that creative authors in artistic disciplines can control what happens to their works.  Such rights protect the author's reputation and value of the author’s artistic work. Such “moral rights” stay with the author.

What is fine art? "Fine art" means an original painting, sculpture, or drawing, or an original work of art in glass. 

The California definition of fine art most likely does not include fine print (etchings, engravings, lithographs, woodblock prints) or tapestries.   It probably does not apply to stained glass windows installed in a building because it is attached to real property.  

Commercial works, such as advertisements, books, magazines, electronic publications, posters and other unlimited reproductions of fine art, and works made for hire, are not covered.

Do I have to attempt to locate the artist?  Yes.  Under this law, it is the seller's obligation to seek to locate the artist within 90 days and pay the royalty due.  Otherwise, the royalty must be paid to the California Arts Council, 1300 I Street, Suite 930, Sacramento, CA  95814, (916) 322-6555, (800) 201-6201.

What if the artist is not paid the royalty? If a seller or the seller's agent fails to pay the royalty, the artist may file a lawsuit within three years after the date of sale or one year after the discovery of the sale, whichever is longer.  The prevailing party in the lawsuit is entitled to reasonable attorney fees.

What should I do if I now realize that I violated the law?  Probably, you should send a royalty payment to the artist.  Sandwich the letter with a thank you for having created a wonderful work for you to enjoy for years. 

What defenses might I have if an artist makes a claim against me?  Defenses include one of the six conditions (described above) not being met, the statute of limitations, and certain other defenses.

There is an unresolved question as to whether or not the 1976 amendment to the Federal Copyright Act, particularly Section 301, which reserves copyright for legislative purposes to Congress, has the effect of preempting the California Act.

What tax write-offs might I have? Check with your tax person; but the 5% royalty might be deductible from the sales price as a cost of selling the asset.

May I legally enter a contract (agreement) with the artist to not owe the royalty?  No.  The right to collect resale royalties can be assigned (i.e., the royalty right can be transferred to another person), but it cannot be waived by contract.  In other words, if an artist signs a contract saying he won’t accept a royalty (or a royalty less than 5%), that part of the agreement is not enforceable.  However, the artist can legally agree to receiver a higher royalty.

What if the Artist is dead? Upon the death of an artist, the royalty rights inure to his or her heirs until the 20th anniversary of the death of the artist.  The artist at the time of death must have been a United States citizen or have been a California resident for at least two years.

What about a gallery, dealer, broker, museum?  They also must seek to locate and pay a royalty to the artist.  Further, regarding consignment agreements, see California Civil Code Sections 1738 through 1738.9

How should artists protect themselves? Artists ought to maintain current records of the location of their artwork. This may assist them in finding out about any resale of their works of art.  Regarding collecting the royalty, most often, a letter from a lawyer advising the seller of the law's application is sufficient to assure payment of the resale royalty.

Side Bar – Destruction of Artwork: In addition, an artist whose work is intentionally or is, through gross negligence, altered or destroyed without his or her permission has the right to injunctive relief, compensation for the loss, payment of attorney's fees and expert witness costs, and potentially punitive damages -- even though the artist no longer owns the work. (California Civil Code §§ 987 and 989)

Federal Law: The Visual Artists Rights Act of 1990 (VARA), 17 U.S.C. § 106A, is a Federal law that protects artist “moral rights” regardless of any subsequent physical ownership of the work itself, or regardless of who holds the copyright to the work. It covers more types of visual art than the California counterpart but it does not have an automatic royalty component.

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