Why Resale Rights for Artists Are a Bad Idea

Bernhard Berger

Selected Problems in Art Law, March 6, 2001

Many argue in favor of a resale right (droit de suite, resale royalty) which would entitle a fine artist to some proportion of the proceeds of resales of her original artwork. Such right could appear in many different variations: The royalty might be assessed only on sales at public auction and/or dealer sales, or might include all private sales. It might be assessed on the gross price, the increase in price, or the profit. It might only apply to sales that meet some minimum price. It could vary with respect to the range of percentages. It might be waivable or inalienable. And it might endure after the artist’s death for varying statutory periods.

The following comments, however, try to show that works of art should not be treated differently from other market commodities. Economic and policy reasons, but also problems related to administration/collection of royalties and issues of international law lead to the conclusion that introduction of an artists’ resale right should be opposed.

The essence of an artists’ resale royalty is the disparity between the initial sales price in the primary market and the price for which a work is later sold in the secondary market. This raises the question why artists should be treated differently from other producers of negotiable goods. One could ask, e.g., whether swatch1 (or its designers) should have had a right to share in the increased value of its watches when people started to collect them. Or one could ask whether a venture capitalist should have to share his profits with the company or its management when he, after all, sells his stock – maybe just because he benefited from the founders’ efforts to bring up the business?

Whether artists should be awarded special treatment, that is, whether artists should be granted a right to share in resale proceeds, can be examined both from a theoretical and from a practical-economic point of view.

In theory, the idea of a fine artist’s right to share in the proceeds of resales has its origin in a natural law concept of intellectual property rights, a view that is common in countries with a civil law tradition, particularly Continental European countries.2 Under this concept, a resale right is part of the artist’s moral rights, which again is an approach that focuses principally on the personality rights of creators and recognizes a continuing relationship between artists and their works, even after sale.

The United States, on the other hand, have followed with respect to artwork for a long time a more traditional view of property rights – that the purchaser of an item for a freely negotiated price is the absolute owner, and is, therefore, generally not receptive to restraints on free alienability. By joining the Berne Convention and enacting the Visual Artists’ Rights Act (VARA) of 1990 the U.S. finally attempted to harmonize its copyright laws with those of European and other countries. In this context, particularly moral rights for artists have been introduced. The introduction of a resale right, however, remains a contended issue.

Practical-economic reality in a free market is that the value of a commodity is what a willing buyer will pay a willing seller at a given time. Thus, when a young artist without a recognized market sells a work to a collector, who assumes the considerable risk that the work may decline in value, market forces dictate the price and the terms of the sale. If the acquisition of such work of art was encumbered with a duty to pay a resale royalty in the future, this would have a number of adverse effects:

There are factors other than the continuing efforts of the artist that may help raise the value of a work, e.g., the unexpected premature death of the artist, his inclusion in a well-known public or private collection, or the inflation in the art market generally. The price of art, like other commodities, varies with supply and demand, and the artist is only one of the many factors that impact on price.

As a result, it appears that the natural law concept of resale royalties views art as a metaphysical concept instead of a market commodity. Thus, it ignores the realities of low profit margins, expenses of ownership and sale, and the inequity of sharing profit without risking loss. By and large, one must assume that the creation of a resale royalty would rather depreciate than promote the broad availability of works and rather decline than stimulate artistic creation.

Additionally, as a matter of policy, the crucial question is whether the imposition of a royalty in the secondary market is intended to help young struggling artists, or to provide an economic right that rewards only commercially successful creators and frequent resellers. Whereas it seems that on the political scene the first attempt is predominant, economic reality clearly shows that resale rights would almost uniquely benefit very few, well-established and, accordingly, often above-average wealthy artists.3 The secondary market for contemporary art is, not only in the United States but supposedly all over the world, very small. Only a handful contemporary artists will ever see one of their works resold. Additionally, where a secondary market exists, it is in effect highly skewed towards a few established artists. A resale right, then, does not benefit any but the most successful contemporary artists.

Moreover, it seems obvious that the collection of resale royalties could not be left to the artists. Thus, one would need to establish public or private service-agents such as, e.g., BMI in the music sector. It is hardly imaginable that this royalty-collector would be capable to fulfill its mission without, first of all, establishing an artwork-register. This, in turn, raises several issues: First, this register (and with it the collection of royalties) will not work without imposing owners, dealers and auctioneers with duties to report sales to the registrar/collector. Related to such duties are, however, serious privacy concerns: sellers, purchasers and other involved persons would have to disclose information that they would otherwise almost certainly prefer to keep confidential. The royalty might thus have the negative impact that particularly private collectors would "go private" with their collections even more frequently than it is already nowadays the case. In addition, the administration of a resale right could be undoubtedly best applied to public sales such as auctions. However, a large portion of art in the secondary market is not sold in this manner. If the right must also be applied to dealer sales and private sales, it is difficult to administer and cost might easily outweigh the benefits. Administration cost, however, should in any case be born by the revenues of the collected resale royalties. By no means it should be accepted that, e.g., tax payers would have to support collection of a droit de suite.

Finally, the market for art, especially with respect to well-established artists that are in fact the only category with a significant secondary market, is nowadays an international or global market. Unless it would work to harmonize the law worldwide, this fact is likely to produce a significant number of conflict of law issues. Consider the following hypothetical: A Swiss art collector sells a painting of Robert Rauschenberg to a Japanese collector. The parties agree that the sales contract shall be governed by Japanese law. Delivery of the painting is organized by two agents (art dealers) and is performed/takes place in Hong Kong. Let us further suppose that Swiss law knows a resale right, whereas Japanese law does not. The artist claims a resale royalty, but the parties to the sales contract oppose. The following questions arise:

Questions over questions… . And there is little doubt that the necessary harmonization of law is very difficult to achieve. As reality proves in other fields, one will always face few "deserters" that believe to gain profits by making their territory available as an "off-shore" place for business that is elsewhere prohibited.

A considerable alternative to a resale right was proposed by William Carleton.4 He suggests a so-called "exhibition royalty" as a "droit de suite" of the artist’s already existing exclusive right to public display. Similar to the music industry, artists could grant a collecting organization the nonexclusive right to license exhibitions of their work, and the organization could perform the functions of monitoring exhibitions and assessing and collecting royalties on behalf of the artists. Exhibitors would be licensees, i.e., purchasers of a temporary use of the exclusive display right.

Recapitulating the present comments, one can state that introduction of an artists’ resale right would not obtain its economic objectives. It would rather be a burden on the art market with negative effects both on the availability of works and artistic creation. Thus, legislative projects to impose resale royalties on sellers/dealers should be abandoned.

Notes:

  1. http://www.swatch.com

  2. In France the droit de suite already exists since 1920. In Germany, e.g., the artist’s resale right is premised on the belief that the increased value of a creation was always latent in it, and that increases in individual works are also due to the artist's continuing body of work. Thus, the increase in value in a particular work over time is what the artist should have received originally.

  3. See the self-explanatory empiric data in the article of Jeffrey C. Wu, Art Resale Rights and the Art Resale Market: A Follow-up Study, 46 J.Copyright Soc’y U.S.A. 531. According to the Art Dealers Association, only fifty living American artists have a resale market for their works; ninety-nine percent of all contemporary art depreciates in value.

  4. William A. Carleton, Copyright Royalties for Visual Artists: A Display-based Alternative to the Droit de Suite, 76 Cornell L.Rev. 510.

Literature:

Jeffrey C. Wu, ART RESALE RIGHTS AND THE ART RESALE MARKET: A FOLLOW-UP STUDY, 46 J.Copyright Soc'y U.S.A. 531

William A. Carleton, COPYRIGHT ROYALTIES FOR VISUAL ARTISTS: A DISPLAY-BASED ALTERNATIVE TO THE DROIT DE SUITE, 76 Cornell L.Rev. 510

Elliot C. Alderman, RESALE ROYALTIES IN THE UNITED STATES FOR FINE VISUAL ARTISTS: AN ALIEN CONCEPT, 40 J.Copyright Soc'y U.S.A. 265

Michael B. Reddy, THE DROIT DE SUITE:WHY AMERICAN FINE ARTISTS SHOULD HAVE THE RIGHT TO A RESALE ROYALTY, 15 Loy. L.A. Ent. L.J. 509

Ann Avery Andres, THE ARTIST'S RIGHT TO SHARE IN THE RESALE OF ART, http://www.tfaoi.com/articles/andres/aa3.htm

THE UK GOVERNMENT'S VIEW ON RESALE RIGHTS, http://www.parliament.the-stationery-office.co.uk/pa/cm199798/cmselect/cmeuleg/155xxvi/15506.htm