Resale Royalty Right, 58175-58179 [2012-23076]

Agencies

• Library of Congress
• Copyright Office

[Federal Register Volume 77, Number 182 (Wednesday, September 19, 2012)]
[Notices]
[Pages 58175-58179]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23076]


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LIBRARY OF CONGRESS

Copyright Office

[Docket No. 2012-10]


Resale Royalty Right

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of Inquiry.

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SUMMARY: The U.S. Copyright Office is undertaking an inquiry at the 
request of Congress to review how current copyright law affects and 
supports visual artists; and how a federal resale royalty right for 
visual artists would affect current and future practices of groups or 
individuals involved in the creation, licensing, sale, exhibition, 
dissemination, and preservation of works of visual art. The Office thus 
seeks comments from the public on the means by which visual artists 
exploit their works under existing law as well as the issues and 
obstacles that may be encountered when considering a federal resale 
royalty right in the United States.

DATES: Comments must be received no later than 5 p.m. Eastern Daylight 
Time (EDT) on November 5, 2012.

ADDRESSES: To submit comments, please visit https://www.copyright.gov/docs/resaleroyalty. The Web site interface requires submitters to 
complete a form specifying name and organization, as applicable, and to 
upload comments as an attachment via a browser button. To meet 
accessibility standards, submitters must upload comments in a single 
file not to exceed six megabytes (MB) in one of the following formats: 
The Adobe Portable

[[Page 58176]]

Document File (PDF) format that contains searchable, accessible text 
(not an image); Microsoft Word; WordPerfect; Rich Text Format (RTF); or 
ASCII text file format (not a scanned document). The form and face of 
the comments must include both the name of the submitter and 
organization. The Office will post all comments publicly on the 
Office's Web site exactly as they are received, along with names and 
organizations. If electronic submission of comments is not feasible, 
please contact the Office at 202-707-8380 for special instructions.

FOR FURTHER INFORMATION CONTACT: Jason Okai, Counsel, Office of Policy 
and International Affairs, by telephone at 202-707-9444 or by 
electronic mail at jokai@loc.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    An artist resale royalty, or droit de suite as it is often called 
in Europe, provides artists with an opportunity to benefit from the 
increased value of their works over time by granting them a percentage 
of the proceeds from the resale of their original works of art. The 
royalty originated in France in the 1920s and is in general practice 
throughout Europe, but is not part of current United States copyright 
law.\1\ Under the Copyright Act (the ``Act''), 17 U.S.C. 101 et seq., 
artists, like other authors, are provided a bundle of exclusive rights, 
including rights to reproduce, distribute and create adaptations of the 
works. Federal copyright law, however, does not generally grant artists 
or authors rights to control the subsequent use of the original 
work.\2\ Rather, the first sale doctrine, codified in 17 U.S.C. 109, 
generally permits the lawful owner of a copyrighted work to display, 
sell or dispose of the work without the authorization of the creator 
under most circumstances.
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    \1\ Resale royalty rights are optional under applicable 
international treaties. See Berne Convention for the Protection of 
Literary and Artistic Works, art. 14ter, Jul. 24, 1971, 25 U.S.T. 
1341, 8282 U.N.T.S. 221 (as amended Sep. 28, 1979).
    \2\ Visual artists are granted very limited rights to prevent 
certain modifications to their works under the Visual Artists Rights 
Act (VARA), 17 U.S.C. 106A. VARA does not provide additional 
economic benefits.
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    For many authors of works such as books, musical works and sound 
recordings, the copyright system provides substantial economic benefits 
and incentives through subsequent uses or performances of those works 
by way of licensing or contractual arrangements. For example, an author 
may sell rights in his or her novel to a publisher, or sell the right 
to create a screenplay to a writer, or sell the right to create a 
motion picture from that screenplay. At each point in the life cycle of 
that novel, numerous opportunities arise for the author to earn income 
from the original novel without having to write another book or 
restrict the number of books available for purchase in the marketplace. 
Indeed, a novelist and his publisher may offer millions of copies of 
the same book to buyers, a filmmaker may distribute millions of DVDs of 
his film, and a songwriter may authorize millions of downloads. In each 
case, every purchaser receives the same work and for the same value as 
the original.
    By contrast, in the case of certain visual artworks, there can only 
be one sale at a time, and only the initial sale will inure to the 
benefit of the actual creator. A sculptor or painter may spend months 
or years creating one work of art and when that work is completed it is 
a unique and singular representation of the artist's intent. Unlike 
books, DVDs or songs, the value of the work is based on its originality 
and scarcity. This means that over time, it may be a collector or other 
downstream entity that will derive the most financial benefit.
    The Office recognizes that buyers of artworks, including 
collectors, galleries and auction houses, frequently purchase artworks 
as investments. These persons may act as important catalysts over time, 
helping to increase the value of certain artworks through exhibitions 
and additional sales, or by supporting the careers of artists through 
payment or promotion. The question thus becomes one of perceived 
fairness under the law. Should these agents and investors benefit 
exclusively, or should they be compelled to provide some additional 
compensation to the artists who made the buyers' profits possible? 
Indeed, California purportedly developed its state law on resale 
royalties in part as a result of the indignation felt by many within 
the artistic community when Robert Rauschenberg's 1958 painting 
``Thaw,'' which was originally sold for $900, was resold at auction 
fifteen years later for $85,000 without compensation to the artist.\3\ 
According to some sources, certain fine art can appreciate by more than 
10% in value per year.\4\
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    \3\ See Patricia Cohen, Artists File Lawsuits Seeking Royalties, 
New York Times, Nov. 1, 2011, available at https://www.nytimes.com/2011/11/02/arts/design/artists-file-suit-against-sothebys-christies-and-ebay.html?pagewanted=all.
    \4\ See Joshua Rogers, How to Outsmart the Billionaires Who'll 
Bid $80 Million for ``The Scream,'' Forbes, Apr. 4, 2012, available 
at https://www.forbes.com/sites/joshuarogers/2012/04/04/how-to-outsmart-the-billionaires-wholl-bid-80-million-for-the-scream/.
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    To be clear, any artist may by contract attempt to negotiate a 
partial interest in his work with a buyer, thereby reserving for him or 
herself a financial interest in its future value. However, this is by 
no means a common practice for transactions of fine art, even for 
accomplished artists, and it seems unlikely for one who is just 
starting out. There are also some accommodations available to visual 
artists in the broader marketplace. For example, some artists may 
exploit their works in other ways, such as through reproductions or the 
creation of derivative works. For some, this may be lucrative; however, 
for others the very nature of their visual art may limit the ability to 
create such derivative markets. In general, although visual art may be 
reproduced or adapted in the form of prints, postcards, miniature 
models of sculptures or even refrigerator magnets, the income realized 
from the sales of these items is not likely to approach the income that 
the original artwork will bring if it increases in value and is sold 
and resold at auction, in private galleries or through private sales.

A. Previous Inquiry

    In 1991, Congress requested the Copyright Office to conduct a study 
on the feasibility of legislation that would require purchasers of 
works of art, subsequent to the initial sale of the work, to pay the 
artist or the artist's heirs a percentage of the sale price. Published 
in December 1992, the Copyright Office report concluded that there was 
insufficient economic and copyright policy justification for enacting 
resale royalty right or droit de suite legislation in the United 
States.\5\ The Office expressed concern that implementing a resale 
royalty right might be harmful to visual artists who lack a viable 
resale market because primary market prices might decline as a result 
of factoring in the future royalty. The Office further explained that 
imposing a federal resale royalty on sales transactions may conflict 
with the traditional United States concept of free alienability of 
property. The Office proposed alternatives to a resale royalty right, 
including compulsory licenses, broader display rights, rental rights 
and federal grants for public works of art. The Office also identified 
eight areas to be considered if legislation were to be proposed: 
Oversight, types of sales, threshold amount, term, foreign authors,

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alienability, types of works and retroactivity. Congress did not enact 
legislation creating a resale royalty right at the federal level and 
there has been no formal congressional deliberation on this topic since 
the 1992 report. In its report, the Copyright Office also suggested 
that Congress may wish to review the issue if the European Community 
extended royalty rights to all of its Member States.
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    \5\ See United States Copyright Office, Droit De Suite: The 
Artist's Resale Royalty 2 (1992) (``Report''), available at https://www.copyright.gov/history/droit_de_suite.pdf.
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B. International Developments

    Since the Office published its study in 1992, the legal landscape 
in foreign jurisdictions with respect to resale royalty treatment has 
changed. In 1992, thirty-six countries had resale royalty legislation; 
today, that number has increased to more than sixty.\6\ In 2001, the 
European Union adopted a Directive generally requiring Member States to 
implement harmonized resale royalty legislation by 2006.\7\ The 
Directive requires Member States to establish a royalty for all resales 
involving an art market professional, including auctions, private 
dealers and galleries. Member States have some flexibility to determine 
what threshold resale price would trigger the royalty below [euro]3,000 
(euros), and to provide for compulsory or optional collective 
management of the royalty. The Directive caps the royalty at 
[euro]12,500, regardless of the resale price. As a result of the 
Directive, droit de suite is now a component of national laws across 
the European community. The United Kingdom, which is one of the largest 
art markets in the world, implemented its resale royalty legislation in 
2006. Artists also receive resale royalties in many countries outside 
of the European Union, including Algeria, Australia, Bolivia, Brazil, 
Bulgaria, Burkina Faso, Chile, Congo, Columbia, Costa Rica, Croatia, 
Ecuador, Guatemala, Guinea, Hondorus, Iraq, Ivory Coast, Laos, 
Madagascar, Mali, Mexico, Monaco, Morocco, Nicaragua, Paragua, Panama, 
Peru, Peru, Philippines, Romania, Russian Federation, Senegal, Serbia 
and Montenegro, Tunisia, Turkey, Uruguay and Venezuela.\8\
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    \6\ See id. at 8; see also The Artist's Resale Right 
Regulations, 2006 S.I. 346 (U.K.), at art. 2, schedule 2; Liste de 
Pays Dont le Ressotissants Beneficiant du Droit de Suite a Juin 2007 
(``List of Countries'') [List of Countries whose Citizens Benefit 
from the Resale Royalty Right as of June 2007], Societe des Auteurs 
dans les Arts Graphiques et Plastiques, available at https://www.adagp.fr/ENG/Liste_pays_droit_de_suite.pdf.
    \7\ Council Directive 2001/84/EC of the European Parliament and 
of the Council of 27 September 2001 on the Resale for the Benefit of 
the Author of an Original Work of Art, art 1, 2001 O.J. (L 272) 32-
36.
    \8\ See Liste de Pays Dont le Ressotissants Beneficiant du Droit 
de Suite a Juin 2007 [List of Countries whose Citizens Benefit from 
the Resale Royalty Right as of June 2007], Societe des Auteurs dans 
les Arts Graphiques et Plastiques, available at https://www.adagp.fr/ENG/Liste_pays_droit_de_suite.pdf.
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C. State Law

    To date, the only resale royalty legislation in the United States 
has been at the state level in California, where it has operated with 
mixed success. The California Resale Royalty Act was enacted in 1976 
and imposes several conditions prior to payment of the royalty: The 
artist must be a U.S. citizen or a California resident of at least two 
years; the seller must reside in California or the sale executed in 
California; the artwork must be ``fine art,'' (i.e., an original 
sculpture, painting, drawing, or work in glass); and the work must be 
sold for more money than was paid for it and for at least $1,000.\9\ 
The seller or seller's agent is required to pay the 5% royalty directly 
to the artist or the artist agent. If the latter cannot be found, the 
seller or seller's agent must pay the royalty to the California Arts 
Council, which continues the search for the beneficiary artist. The 
California Arts Council does not charge an administrative fee for this 
service.
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    \9\ CAL. CIV. CODE Sec.  986 (West 2012).
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    Notably, after thirty-five years on the books, a federal district 
in California recently declared the California Resale Royalty Act 
unconstitutional under the Commerce Clause. The court concluded that 
the state statute impinged on the federal government's authority to 
control commerce among the states because it regulated sales occurring 
wholly outside of California.\10\ An appeal is pending in the United 
States Court of Appeals for the Ninth Circuit.
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    \10\ See Estate of Graham v. Sotheby's Inc., 11-CV-08604, 2012 
WL 1765445 at *1-2 (C.D. Cal. May 17, 2012).
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D. Proposed Legislation

    On December 15, 2011, Senator Kohl of Wisconsin and Representative 
Nadler of New York introduced bills in the 112th Congress titled, 
Equity for Visual Artists Act of 2011 (EVAA), S.2000 and H.R. 3688 
respectively. The EVAA requires a resale royalty right, under certain 
circumstances, to be collected from the seller. The proposed royalty 
would be triggered when a work of visual art is sold at auction for at 
least $10,000 by someone other than the authoring artist. Following the 
sale, the entity receiving the proceeds pays a royalty of 7% to a 
qualifying visual artists' collecting society. The collecting society 
is required to distribute 50% of the net royalty to the artists or 
successor as copyright owner and place the other 50% of net royalty 
into an escrow account to support U.S. nonprofit museums in their 
future purchases of visual art created by living artists domiciled in 
the United States. Failure to remit the royalty to the collecting 
society is copyright infringement subject to statutory damages. The 
EVAA also directs the Register of Copyrights to issue regulations 
governing the designation and oversight of visual artists' collecting 
societies.
    In a letter dated May 17, 2012, Senator Kohl and Representative 
Nadler requested that the Copyright Office ``assess how existing law 
affects and supports visual artists, and how a federal resale royalty 
provision would affect copyright law, visual artists and those involved 
in the sale of art work.''
    The Office therefore seeks comments from interested parties on how 
visual artists exploit their works under existing law, including any 
limitations due to the nature of visual art, and the effect, if any, a 
resale royalty right would have on the promotion, dissemination and 
sale of works of visual art.

II. Discussion

    There are a variety of factors to consider when examining how 
visual art is treated under the Copyright Act and whether a federal 
resale royalty right would foster the goals of the copyright system. 
Among the issues are:
    Current Copyright Law Implications: The first sale doctrine (17 
U.S.C. 109) is a fundamental tenet of U.S. law. It helps to maintain 
the copyright system's balance between incentives for authors and the 
public's interest in widespread dissemination of copyrighted works. How 
a federal resale royalty right would affect the first sale doctrine is 
therefore of paramount interest to the Office, as is the interaction 
with any other exceptions and limitations that support the 
dissemination of works of art to the public.
    Promoting Production of Creative Works: Copyright law furthers the 
creation and/or distribution of new works and provides authors (and 
those who invest in the works of authors) with certain incentives and 
protections under the law. Therefore, whether the adoption of a federal 
resale royalty regime would further incentivize and protect the authors 
of certain visual artworks is also of paramount interest to the Office.
    Fostering the Art Marketplace: The effect of a resale royalty on 
current or future markets is a related, important question, though that 
is not to say that the law must or should protect all existing business 
models. Is it possible, however, that a resale royalty right

[[Page 58178]]

might add to the costs of those who buy and invest in artworks and, if 
so, are such costs acceptable from a policy perspective? In this 
regard, the art market should be broadly defined, including emerging 
artists, heirs, investors and collectors.
    Scope and Applicability of a Royalty: A threshold question is what 
categories of works should be covered under a resale royalty right. For 
example, the California resale royalty provision governs works of 
``fine art, ``while the European Directive covers all ``original works 
of art.'' The EVAA would cover works of ``visual art'' as defined in 
Section 101 of the U.S. Copyright Act. The Office is aware that some 
artists today work in series, producing limited numbers of identical 
works and some works that may have been sold as unique creations in the 
past are now sold in copies including, for example, so-called Internet 
Art. Moreover, some artists, though certainly not most, are moving from 
a business model where works are sold to one where access is licensed. 
Such issues may inform the appropriate scope of fine art, original art 
or the like.
    Contractual Considerations: For any number of reasons, an artist or 
his or her heirs may not wish to participate in the resale royalty 
right process through a collecting society, and may wish instead to 
pursue payment of a royalty directly from the seller; or an artist or 
his or her heirs may wish to waive or contractually discharge his or 
her right to receive the royalty. For example, an artist may wish to 
waive the right to receive the royalty in return for a higher initial 
sale price rather than wait the years or decades for a work to sell at 
auction, or an artist may wish to contract privately with the initial 
seller to provide for a payment of a percentage of any future sales, 
although the enforceability of this type of contractual term has been 
questioned. In each instance, however, it is the artist setting their 
individual terms of sale and determining individual contractual 
obligations with each initial seller, not a statute. Alternatively, an 
artist may prefer to receive a lesser royalty in return for a third 
party to administer and distribute payments due. Perspective on the 
issue of how to address the contractual issues associated with a resale 
royalty right, including whether the right should be transferable or 
waivable, is helpful to the Office in exploring the practical effect of 
a resale royalty.
    Types of Transactions: Art is bought and sold through myriad 
channels and venues. Many artists are affiliated with galleries that 
buy, consign, sell and even resell works to private or corporate 
clients. Other transactions occur in well publicized auctions, private 
auctions, online or even through direct internet sales. The laws in 
California, United Kingdom, France and Australia appear to cover a 
broad range of transactions involving art market professionals, 
including those through online sales, private galleries and auctions. 
Given the variety of ways in which works of art are sold or transferred 
in the U.S. and across borders, a significant factor for the Office to 
consider is to what extent a resale royalty should apply or be managed 
in the numerous commercial channels, or whether the resale royalty 
should apply to some types of transactions and not others.
    Duration of Term: One of the rationales for having a copyright term 
extending post mortem of the author is to provide income and benefits 
to the heirs of the artist or author. This rationale may not apply in 
the same way to a federal resale royalty. Many countries, however, 
simply follow their general copyright term (such as life of the author 
plus seventy years), while the California state law uses a term of life 
of the author plus twenty years. Thus, consideration should be given to 
the appropriate duration of such a right and how the specific duration 
or term of a right would support the goals of the copyright system.
    Threshold Values: Not every artist's works sell for tens of 
thousands or even millions of dollars. Many works may be resold by 
collectors for hundreds or thousands of dollars at local auctions, 
charity events, or perhaps even some larger sales events. Any such 
resulting royalty from these smaller payments may be outweighed by the 
costs incurred by making the payment. Also, if an artwork is sold at a 
charity event, the proceeds are not realized by the seller, but by the 
charity. Under a traditional rubric, it appears that the charity would 
be responsible for payment of the royalty, which lessens the amount it 
may redirect toward its charitable efforts. The Office would find it 
helpful to explore the issue of whether a minimum amount of money 
realized from a sale must be attained in order for the requirement of a 
royalty payment to be made, and if so, what standards would be 
appropriate. For example, the California resale royalty applies to 
sales of $1,000 or more, while the European directive sets a maximum 
threshold of [euro]3,000. The EVAA would impose a $10,000 threshold on 
transactions subject to the royalty. It would be helpful to receive 
information about these varying approaches and how the different 
thresholds may support the goals behind the royalty.
    Payment and Enforcement: It is possible that under a resale royalty 
scheme, the artist and the subsequent seller may have no contractual 
relationship and therefore the only obligation on the payer of the 
royalty would likely be statutory. Therefore, any statute would likely 
include provisions to enforce the payment of the royalty and remedies 
to both the artist and the collective management organization should 
such an organization be utilized. One may also envision a situation in 
which the artists or his or her heirs are unable to be located. The 
seller may not know how or have the means to locate the artist or 
heirs, and may be under obligation to pay the royalty indefinitely.
    Calculating a Royalty: The basis for calculating a resale royalty 
could be set in different ways, for example, based on the present sale 
price of the art work, or its appreciated value (i.e., the difference 
between the initial sale price and present sale price). Each formula 
for calculating a royalty rate could have different consequences for 
the artist and seller and would need to be considered as part of the 
royalty mechanisms in place.
    Royalty Rate: The amount of the royalty could affect the market and 
artists in different ways and should be assessed, including reviewing 
the experience of other jurisdictions. The EVAA would set a royalty 
rate of 7%, while California and Australia set a royalty of 5%. The 
European Directive adopts a sliding scale based on the amount of the 
transaction, from 5% for transactions involving sales of [euro]50,000 
to a royalty of only 0.25% for transactions over [euro]500,000. The 
European Directive also caps the maximum royalty at [euro]12,500. The 
Office seeks information about what factors should be considered in 
setting an appropriate royalty rate and how the royalty rate might 
affect artists and the art market.
    Administration of a Royalty: Additionally, if the royalty payments 
are collectively managed, administrative costs born by the collecting 
society are usually deducted from the final payment to the artist 
rather than added to the cost of the royalty paid by the seller. The 
final amount paid to the artist or his or her heirs will undoubtedly be 
less than the amount collected and may not be fully known until payment 
is made. In addition, a certain level of transparency in such a 
collecting society would be required in order to provide the artists 
and his or her heirs with a sufficiently clear

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accounting of payments in relation to the administrative costs 
associated with operating as the collecting society. It would be 
helpful to understand whether collective management of royalty payments 
should be proposed, and if so, what type of entity should be authorized 
(e.g., government or private) and what standards should apply.
    Experience in other Jurisdictions: As noted above, a resale royalty 
currently applies under state law in California, as well as in many 
European and Latin American countries. These jurisdictions have taken 
different approaches to the issues identified above (i.e., transactions 
covered, thresholds, royalty rates and administration). It would be 
helpful for the Copyright Office to receive information on the 
practical experience of those jurisdictions, any obstacles that may 
have been encountered, and data on the effect of the right on those 
markets.
    Changes Since the Last Report: The Copyright Office last reviewed 
the resale royalty in 1992. It is therefore interested in any 
information addressing whether there have been significant policy or 
economic changes that should be considered when assessing the current 
feasibility of a resale royalty.
    Alternatives to a Resale Royalty: As the Copyright Office 
acknowledged in its 1992 report, there may be alternatives to a resale 
royalty that would further the goals of promoting creativity and the 
public dissemination of visual art.

IV. Subject of Inquiry and Conclusion

    The Office hereby seeks comment from the public on factual and 
policy matters addressed above, including the potential effect of a 
resale royalty on visual artists, current copyright law and practical 
implications for commerce. If there are any pertinent issues not 
discussed above, the Office encourages interested parties to raise 
those matters in their comments. The Office may also publish a further 
Notice of Inquiry posing specific questions and possibly exploring 
additional alternatives following the receipt of comments in response 
to this Notice.

    Dated: September 13, 2012.
Karyn Temple Claggett,
Senior Counsel for Policy and International Affairs.
[FR Doc. 2012-23076 Filed 9-18-12; 8:45 am]
BILLING CODE 1410-30-P