Who This Decision Affects
Artists expecting a 5% royalty on sales of any “work of fine art” as outlined in a California state law that took effect January 1, 1977. This law was enacted to protect artists by requiring the seller, or seller’s agent, to withhold a 5% royalty and pay that to the artist.
Artists expecting a 5% royalty on sales of any “work of fine art” as outlined in a California state law that took effect January 1, 1977. This law was enacted to protect artists by requiring the seller, or seller’s agent, to withhold a 5% royalty and pay that to the artist.
Impact of the Recent Decision
The. U.S. Court of Appeals for the Ninth Circuit upheld a lower court’s decision that dismissed a plaintiff’s claim to royalties that was based on the state law. Instead, the court found that federal law (the 1976 Copyright Act) preempts the state law. The only silver lining for artists in the court’s decision is that solely for the year of 1977, the more artist-friendly state law holds.
The lesson learned for artists: base intellectual property protection plans (and royalty expectations) on federal law over state law.
The Details
The U.S. Court of Appeals for the Ninth Circuit upheld a lower court’s decision to dismiss several plaintiffs’ claims for resale royalties under California’s Resale Royalties Act (“CRRA”) that postdated the 1976 Copyright Act’s effective date by finding that federal copyright law expressly preempted the artists’ claims under state law. Close v. Sotheby’s, Case Nos. 16-56234, -56235, -56252 (9th Cir. Dec. 3, 2018) (Bybee, J).
Under the CRRA, the seller of “a work of fine art” or the seller’s agent must withhold 5 percent of the sale price and pay it to the artist. If the seller or agent is unable to locate and pay the artist within 90 days, the 5 percent royalty goes to the California Arts Council. In that event, the Council must attempt to locate and pay the artist. If the artist has not been located after seven years, the Council may then use the funds to acquire fine art for public buildings. If the seller or agent fails to pay the 5 percent royalty, the artist may bring an action for damages and attorneys’ fees. Notably, the artist’s right to the 5 percent royalty may not be waived or reduced by contract.
The plaintiffs in this case are artists seeking resale royalties under CRRA from the statute’s effective date, January 1, 1977, to the present. In 2011, the plaintiffs filed class-action complaints against Sotheby’s, Christie’s and eBay alleging claims under the CRRA and derivative claims under California’s Unfair Competition Law. The district court held that some of the plaintiffs’ claims were pre-empted by federal copyright law. The plaintiffs appealed.
The Ninth Circuit affirmed in part and reversed in part. The Court held that the plaintiffs’ CRRA claims which postdate the 1976 Copyright Act’s effective date of January 1, 1978, were expressly pre-empted by certain provisions of the Copyright Act of 1976 (17 USC §301(a).). The court, however, further found that sales that occurred between the CRRA’s January 1, 1977, effective date and the Copyright Act’s January 1, 1978, effective date were not pre-empted. Therefore, the district court’s dismissal of those claims was reversed and remanded to that lower court for further consideration.
Regarding the pre-empted claims, the Ninth Circuit found that the plaintiffs’ CRRA claims asserted rights equivalent to the federal distribution right codified in section 106(3) of the Copyright Act as limited by the first sale doctrine codified in section 109(a). Section 106(3) grants copyright holders the exclusive right to distribute copies of copyrighted work to the public, and the first sale doctrine limits this right to the first sale of a copyrighted work.
The Court stated that CRRA’s rights are equivalent because the root of both provisions concerns the distribution of copies of artwork and defines artists’ right to payment on downstream sales of those copies. The court concluded that “the CRRA does not merely grant additional rights beyond what federal copyright law already provides, but fundamentally reshapes the contours of federal copyright law’s existing distribution right. This runs counter to section 301(a), which precludes ‘all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright,’ even if they are not precisely within the contemplation of the Copyright Act.” The Court thus found that the CRRA is expressly pre-empted by the Copyright Act during the time when the CRRA and the Copyright Act were both effective, which is to say after January 1, 1978.
The Ninth Circuit remanded the case back to the district court to resolve the plaintiffs’ claims, if any, arising between the CRRA’s effective date of January 1, 1977, and the 1976 Copyright Act’s effective date of January 1, 1978.