Droit de suite and blockchain

A perspective on droit de suite is provided by 'Democratizing Art Markets: Fractional Ownership and the Securitization of Art' from Amy Whitaker and Roman Kräussl.

The authors comment

Using unique historical sales data from the Leo Castelli Gallery, we introduce a novel model of evaluating art market returns using first-sale prices alongside auction results. We create a sample portfolio to analyze what would have happened if the artists Jasper Johns and Robert Rauschenberg had retained 10% equity in the work they sold through their dealer in the years 1958 to 1963, which was the start-up phase of the artists’ careers. We find that this retained-equity portfolio would have performed from 2.8 up to 140.8 times better (Rauschenberg) and from 24.9 up to 986.8 times better (Johns) than the S&P 500 over the same period. Modeling equity portfolios for artists changes the fundamental structure of art markets. Because the fractional equity is a property right under the Coase theorem, this system introduces a secondary market for shares in artwork. These shares could trade using a technology such as the blockchain and would allow more democratic and diversifiable access to investment in art markets. Our framework extends to other creative industries in which early-stage work is difficult to value.

They conclude

We undertook the analysis of whether fractional equity would outperform the art market because we observed the structural misalignment of price and value. We did not know at the outset that we would see such outsize performance. To outperform the market by a factor of five is handy; to do so by a factor of up 1,000 is suspicious. We acknowledge that we were working with the earliest work of two of the most well known American artists of the twentieth and twenty-first centuries. As stated earlier, we did not intend this work, by any means, to extend to describe the likely trajectory of all artists in markets. Our work here shows more simply what is possible, and given that large possibility, why the question of shared value matters. 

A system of fractional equity has downside risk, of course, but it is not a leveraged asset within this study and so the floor is zero, or is the opportunity cost of foregone gains in other investments. There would surely be many cases in which artists retained equity and received no gains, therefore giving up cash at the moment of sale. Yet to see the potential of the outsize gains leads us to believe that this structural intervention in markets for creative work deserves serious consideration and that it is perhaps artists themselves who should decide whether to take the risk of retained equity. In practice and over time, artists might not even forego income to retain equity; prices might adjust upward. 

We see several directions for future research. First, the magnitude of the degree to which the two artists’ retained equity portfolios outperformed the market leads us to want to design more conservative tests. As such, we would model larger portfolios with more heterogeneous performance, such as artworks sold in group shows, or whole collections. Second, we plan to develop further the ways of modeling the tax implications of donations and the resulting possibility of asset value truncation through donation, and to build valuation models that take into account artists’ costs of production. Third, through appraisal records, we plan to create more of a “mark to market” model rather than a linear imputed return. Finally, we intend to model a more dynamic portfolio construction, i.e., a portfolio with more buying and selling of art, which would start to describe the kind of investor behavior that would grow as fractional shares entered the market and trading in and out of them became relatively liquid. 

Fundamentally, artists have a real claim on the added value in art investors’ subsequent gains. Outside the arts, markets depend on innovation but lack systems to align rewards for creative risk with pay. We conclude by returning to the starting point of the data in this study, which was a handwritten notebook. In cursive handwriting in a small personal notebook, Leo Castelli recorded $300 sales that would go on to become multi-million dollar auction results. And before that, in poorly heated studios, the artists developed the art itself. The moment of value creation is, in its idiosyncrasy, markedly different from the moment of value capture as the work is later resold. The fractional equity model bridges the idiosyncratic starting point and possible stratospheric returns, while offering tools for diversified investment and democratized access to markets for art. The purpose of this study is broader than whether the artists receive a good investment return. The sheer act of assigning the equity is a structural alignment of price and value that generalizes beyond fine art, to represent ways of making the risks of research and development in early stage creative work in any field conform to the market’s ability to assign value. Ultimately, our model solves for the central difficulty of pricing—that is, accurately reflecting the value of—early-stage creative work. Value can be more flexibly, and in the long run more accurately, assigned as a fraction than a dollar amount. Thus, these now famous artworks have something crucial to tell us about the value created by labor, broadly defined. These artists underscore the necessity of seeing early-stage creative work as an act of investment. The blockchain enables a future of work in which anyone can have fractional ownership of the upside they help to create

Copyright as Distributive Justice

'Copyright and Distributive Justice' by Justin Hughes and Robert P. Merges in (2016) 92 Notre Dame Law Review comments 

 When concerns about copyright’s effect on distributive justice are raised those concerns typically focus on access to information. Most of these discussions assume that by conferring control over access to copyrighted works, copyright in general concentrates wealth with corporations and a few individuals. This article takes a different perspective, proposing that copyright has been and remains an important tool for wealth distribution to a large and diverse group of individual creators. Our focus is not on the distribution of copyrighted works – who controls them and who has access to them. Instead, we concentrate on the distribution of income that flows from sales of copyrighted works. The income streams created by copyright, we argue, constitute another of copyright's contributions to distributive justice. Using a Rawlsian framework for distributive justice, we consider – both theoretically and empirically – how copyright law allows individuals to earn income and build wealth. We provide a sketch of Rawls’ theoretical structure for distributive justice, including a detailed look at Rawls’ canonical “Difference Principle.”

With Rawls’ framework in the background, we first show that copyright contributes vitally to the incomes of average-earning creative professionals (with a focus on the music industry). Second, we argue that copyright is a uniquely effective institution in providing “equality of opportunity” in wealth accumulation. In this regard, we propose that copyright has been central to whatever limited “equality of opportunity” African-Americans have enjoyed in the United States. Indeed, for the wealthiest African-Americans, copyright has been the most important form of property for social and economic advancement. This is so, we argue, because copyright is one of the few social institutions that permit a person to turn labor directly into economic assets (in the form of copyrighted works), and hence to create real, sustainable wealth starting only with personal labor. This, we conclude, is an important dimension of copyright’s role in overall distributive justice.

The authors conclude -

The dominant discourse in copyright scholarship has treated creative individuals only as a means to an end: generation of original expression. When scholars have expressed any concern at all about distributive justice, it has been only about fair access to information and material, in other words, as a bookend to the dominant utilitarian analysis. But when we turn our attention away from considerations of fair access to works, and to- ward considerations of a fair distribution of income and wealth, we come to see a neglected side of copyright. Our main point throughout has been this: from the limited evidence available, the copyright system appears to contribute positively and significantly to economic distributive justice in the U.S. economy.

Using the framework of John Rawls’ principles of justice, we have explored how copyright increases the income of middle tier members of society who are trying to support themselves in creative professions, professions we all – everyone from politicians to law professors – laud as part of the desirable ‘information economy’ future. We have also reviewed mechanisms in existing copyright law – from minor procedural speed bumps to termination of transfer – that show copyright’s orientation to protect the prospects of creative individuals. We have also discussed other tools in the copyright toolbox to improve the distributive footprint left by copyright, including droit de suite for artists and equitable remuneration mechanisms used in other developed economies.

Another requirement of Rawlsian distributive justice is that all individuals have fair equality of opportunity for all “offices and positions.” There is no question that American society as a whole has failed to provide such equality of opportunity for women and minorities, particularly for African-Americans. In that context, copyright has been a rare if not unique institution providing opportunity for African-Americans to achieve the greatest economic success: the list of the wealthiest black citizens of the U.S. is utterly dominated by people whose fortunes are rooted in the copyright industries: entertainment, music, sports, publishing, and the like. Given the massive economic barriers facing the African-American community generally, this is a striking realization. Not that copyright in itself is an effective anti-poverty program; not that it offsets structural racism in its myriad forms. Our point here is simply that copyright has been uniquely effective in permitting African-Americans something closer to fair equality of opportunity to achieve the highest levels of wealth.

In the end, our argument is simple: copyright, though a form of property, does not only or disproportionately reward large corporate interests. Copyright is, and can be, an important tool to promote a just distribution of income and wealth in society.

This has political as well as economic ramifications. The historian and biographer A.N. Wilson wrote in the 1980s that “[p]roperty never has been abolished and never will be abolished. It is simply a question of who has it. And the fairest system ever devised is one by which all, rather than none, [are] property owners.” That sentiment certainly comports with the vision of the Framers of the American Republic. These were individuals who saw property ownership as a bulwark against tyranny and a mechanism to advance the individual. The little dollop of economic power copyright confers helps creative people support themselves and a thriving creative class feeds our culture and ultimately our polity. In helping distribute income to creative individuals and supporting them as a professional class, copyright forms part of a thriving democratic republic and a just society

Collective Rights Administration

The vicissitudes of the Educational Rights Collective of Canada (ERCC) - one of the Canadian copyright collecting societies (aka copyright collective rights administration bodies) - offer a perspective on Viscopy and the Australian droit de suite regime.

Canadian copyright law empowers that nation's educational institutions to copy and use certain radio and television programs for free, paying royalties for some programs to the ERCC with the tariff being formally certified by the Copyright Board of Canada (broadly equivalent to the Copyright Tribunal in Australia under under s 138 of the Copyright Act 1968 (Cth)). Certification reflects s 66.52 of the Canadian Copyright Act.

The ERCC has indicated that

Royalties received by ERCC pursuant to its tariffs have always been modest; in recent years, they have not exceeded $10,000 on average. These amounts never came close to  covering the collective’s obligations; it continues to carry significant payables dating back to the hearing into the 1999-2002 tariff.

Royalty receipts have been supplemented by loans in the amount of $20,000 from each of its six founding member collectives [ie the leading Canadian rights administration bodies]. These loans have never been paid back. 

Costs have continued to exceed revenues, and debts have always largely exceeded any amount available to the collective. As a result, nothing has ever been distributed to rights holders. 

Recent amendments to the Act have made it increasingly unlikely that ERCC’s costs would ever be covered by royalty receipts. 

Unable to sustain continued losses, ERCC’s board of directors, comprised of one representative of each founding member collective, has recently voted to recommend to the five remaining members (one member having left ERCC a few years back) to dissolve ERCC and to write off the $20,000 loans as well as any accumulated interest. The five members are in the process of signing the required special resolution to commence the dissolution procedure. Accordingly, within approximately 120 days of November 4, 2013, there will be no entity to administer the receipt of any royalties pursuant to the 2012- 2016 tariff.

The ERCC has formally sought a variation to the current tariff "as part of the process to have an orderly winding down of its affairs".

The Board notes [PDF] that

The ERCC argues that the variance it seeks will not prejudice the interest of any rights holders, whether or not they are represented by ERCC or its member collectives. ERCC has never had any money to distribute to royalty claimants and never will. Outstanding debts, including founding member loans, stand at approximately $830,000. Funds in hand currently are less than $40,000. Founding members’ loans will not be refunded. Once windup fees of approximately $15,000 are paid, other creditors will receive less than five per cent of what they are entitled to receive. Any additional royalties that ERCC might receive would serve to pay first the balance of these debts and second the member loans before any payment could be made to royalty claimants. 

ERCC’s unstated conclusion appears to be that since the cost of receiving royalties is expected to always exceed the amounts that may be so received, especially now given recent amendments to the Act, it is in the best interest of all concerned that the tariff be terminated and the collective dissolved. 

ERCC states that it cannot be wound up until arrangements have been entered into with its debtors and creditors, which it expects will occur shortly after the Board’s decision is received. The application ends with an expression of “hope that the Board recognizes the futility of the situation ERCC and its members find themselves in and hope that the Board will approve the requested variance as expeditiously as possible.”

a US Droit?

The US Copyright Office has released a 112 page report [PDF] that broadly favours establishment of a national droit de suite regime in the US.

The report states that

A well-functioning copyright law must provide robust support for authors, who are, after all, the first beneficiaries of the copyright system. Indeed, U.S. copyright law derives fundamentally from the principle that authors’ interests are inseparable from the broader public interest. While “[t]he immediate effect of our copyright law is to secure a fair return for an ‘author’s’ creative labor,” the “ultimate aim is . . . to stimulate artistic creativity for the general public good.” Accordingly, to the extent that the current copyright system is not working effectively for authors – or is disfavoring a discrete class of authors – Congress should be concerned. 

In the framework of the resale royalty discussions, the authors at issue are certain visual artists, including painters, illustrators, sculptors, and photographers (hereinafter “visual artists” or “artists”). Based on the information and comments provided during the preparation of this report, as well as the Office’s independent research, the Office agrees that, under the current legal system, visual artists are uniquely limited in their ability to fully benefit from the success of their works over time. The distinctive nature of the creation and marketing of visual art has not changed since the Office’s main study on the topic, published in 1992. At the same time, recent developments – including in particular the adoption of resale royalty laws by more than thirty additional countries since the Office’s prior report – would seem to warrant renewed consideration of the issue. 

In general, visual artists do not share in the long-term financial success of their works. Instead, the financial gains from the resale of their works inure primarily to third parties such as auction houses, collectors, and art galleries. Moreover, the income typically available to other authors through reproduction and derivative uses of their works is more limited for artists. Although the Internet has provided artists with greater opportunities to exploit derivative images and/or sell mass-produced copies of their works, stakeholders agree that “for most visual artists . . . the amounts involved in reproduction or representation are generally insignificant.” Indeed, it appears to be common ground that reproduction rights represent a “very minor aspect of [most artists’] careers” and that the first sale of a work is “the main or exclusive source of income for almost all American artists.”

The Copyright Office agrees that these factors place many visual artists at a material disadvantage vis-à-vis other authors, and therefore the Office supports congressional consideration of a resale royalty right, or droit de suite, which would give artists a percentage of the amount paid for a work each time it is resold by another party. A large and growing number of countries around the world – more than seventy in total – now follow that approach. Other potential responses might include the facilitation of voluntary initiatives among stakeholders in the art market, amending the copyright law to give artists a continuing economic interest in their works through, for example, greater interests in public display or commercial rental rights, and increased federal grants for visual art programs. 

That said, an “information problem” in the art market – something that many have acknowledged – does present certain challenges. Any assessment of the treatment of visual artists under U.S. law suffers from a lack of independently verifiable data about the operation of the art market and a resulting difficulty in determining whether a resale royalty in particular would truly operate to place artists on equal footing with other authors. At the same time, the Office recognizes that many of the arguments against the right are overblown. Moreover, according to the most recent studies, a number of the adverse consequences that this Office’s previous report predicted might follow from implementation of the right have not materialized in countries that have adopted droit de suite since that time. Accordingly, the Office finds no clear impediment to implementation of a resale royalty right in the United States and supports the right as one alternative to address the disparity in treatment of artists under the copyright law. 

The Copyright Office makes the following observations and recommendations:

• Although visual artists possess the same exclusive rights under copyright law as other authors, they are disadvantaged as a practical matter by certain factors endemic to the creation of works that are produced in singular form (or in very limited copies) and are valued for their scarcity. There are sound policy reasons to address this inequity, including the constitutionally-rooted objective to incentivize the creation and dissemination of artistic works. 

• While a resale royalty could be one of many factors affecting the location of auctions and other art sales, there is no evidence to conclusively establish that it would harm the U.S. visual art market. Studies produced since this Office last examined the issue in 1992 belie earlier assumptions that a resale royalty would substantially reduce prices in the primary art market or shift the secondary art market away from the United States. 

• Although adoption of a resale royalty right is one option to address the disparate treatment of artists under the law, it is not the only option, and more deliberation is necessary to determine if it is the best option. The Office’s 1992 report highlighted the fact that resale royalties appear to benefit only an extremely small number of artists. Current studies and reports remain consistent with this view. In light of the potentially limited benefits, the costs of the law (e.g., administration and enforcement), while not insurmountable, suggest that Congress should approach this issue with some caution. 

• Should Congress wish to adopt a resale royalty right in the United States, the Office recommends that the legislation:

o Apply to sales of works of visual art by auction houses, galleries, private dealers, and other persons and entities engaged in the business of selling visual art; 

o Include a relatively low threshold value to ensure that the royalty benefits as many artists as possible; 

o Establish a royalty rate of 3 percent to 5 percent of the work’s gross resale price (i.e., a range generally in line with royalty rates in several other countries) for those works that have increased in value; 

o Include a cap on the royalty payment available from each sale; 

o Apply prospectively to the resale of works acquired after the law takes effect; 

o Provide for collective management by private collecting societies, with general oversight by the U.S. Copyright Office; o Require copyright registration as a prerequisite to receiving royalties; 

o Limit remedies to a specified monetary payment rather than actual or statutory damages; 

o At least initially, apply only for a term of the life of the artist; and 

 o Require a Copyright Office study of the effect of the royalty on artists and the art market within a reasonable time after enactment.

Droit de suite inquiry

With the national election in sight the Commonwealth Arts Minister has announced terms of reference for the inquiry into the droit de suit, ie resale royalty for the visual arts under the Resale Royalty Right for Visual Artists Act 2009 (Cth) discussed in past posts.

The inquiry is to provide -

• an outline of the issues that the legislation was intended to address 
• an assessment of the efficiency and effectiveness of the legislation and associated scheme in achieving the original objectives 
• an analysis of the likely impacts had the legislation not been introduced 
• an assessment of the impact of the scheme on artists, the art market, art market professionals and consumers, including costs and benefits 
• the development and consideration of projections that show the likely scale of the scheme in future years 
• the identification and consideration of any revisions to the Act or regulations that could enhance the operation of the scheme.

Droit Financials

Information from the response to Parliamentary Questions by Senator Gary Humphries regarding the Australian droit de suite (Resale Royalty Scheme) administered by Copyright Agency Limited (CAL)

1. What is the total value of royalty collections to date, including figures for each quarter.

The total value of royalty collections is $805,115.70. Data is collected on a six monthly basis.

2010 July-Dec: $26,191.80

2011 Jan- June: $128,323.80

2011 July-Dec: $204,811.20

2012 Jan-June: $153,670.50

2012 July-Dec: $292,118.40

2. What percentage of the total value of royalties collected has gone to Indigenous artists, including figures for each quarter.

Since the commencement of the scheme, 59% or $440,042 has been paid to Indigenous right-holders. Actual payment data is only available as a total. A disaggregation would require an unreasonable diversion of resources.

3. What are the annual Art Centres figures for first sales of Indigenous art.

The Department does not have the requested information

4. What is the total value of the top 600 individual royalty payments to date.

 $296,772

5. How many individual right-holders received the top 600 individual payments.

150

6. How many of the top 600 individual royalty payments have gone to Indigenous right-holders, including figures for each quarter.

301 payments for 91 right-holders -

2010 July-Dec: 17 payments

2011 Jan-June: 61 2011

July-Dec: 59

2012 Jan-June: 76

2012 July-Dec: 88

7. To date, what is the total value of the lowest 2,000 individual royalty payments.

$115,379 

8. If the scheme can deliver the smallest individual artist royalty payment at $50, with a 10% administration fee of $5, why does the scheme charge an administration fee of $1,000 to deliver an individual royalty payment of $10,000.

The scheme allows the collecting society to charge a 10% administration fee on each royalty paid to contribute to the scheme becoming self-sustaining over time.

9. After deducting non-recurrent set-up costs, what is the average cost of the CALs individual royalty payments to date.

$30

US Droit de suite and Antiquities

The US Copyright Office, ie the registration arm of the Library of Congress, is conducting an inquiry into the droit de suite (aka the resale royalty right).

The droit is in place in Australia (and in Europe) but so far has underwhelmed most stakeholders.

The Office's notice comments that -

Under the Copyright Act (the “Act”), 17 U.S.C. 101 et seq., visual artists, like other authors, are provided a bundle of exclusive rights, including rights to reproduce, distribute and create adaptations of their works. These rights, however, do not affect the disposition of the original work of authorship. Instead, the first sale doctrine, codified in 17 U.S.C. § 109, generally permits the lawful owner of a copyrighted work “to sell or otherwise dispose of the possession of that copy” and to “display that copy publicly ...” without the authorization of the creator. 

For many works, such as books, musical works and sound recordings, this system provides substantial economic benefits and incentives for creators. A question is whether the system is as advantageous for certain artists of visual works. For some artwork, where the primary financial benefit may be through the sale of the original work rather than multiple copies, the creator may receive less financial benefit from the work than do subsequent collectors or other downstream entities that are able to take advantage of the increase in the value of the artwork over time. A resale royalty right is one way by which to address this perceived inequity by allowing artists to receive additional compensation from later sales of the original work of art. Some foreign countries have experience with this approach. 

The Copyright Office has been asked by Congress to review how the current copyright legal system 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.

In Australia the Federal Magistrates Court in BC Galleries (Vic) Pty Ltd v Commonwealth of Australia [2012] FMCA 742 has considered a challenge to the seizure and forfeiture under the Protection of Moveable Cultural Heritage Act 1986 (Cth) of items believed to be illegally exported protected objects of a foreign country that had been imported into Australia.

BC successfully argued that the Commonwealth bore the onus of proof to show that

• each of the objects seized was a protected object of a foreign country, ie “an object forming part of the moveable cultural heritage of a foreign country” (with the 1986 Australian statute reflecting the 1970 UNESCO Convention on the means of prohibiting the illicit import, export and transfer of ownership of cultural property)
• the object had been exported from the relevant foreign country;
• the law of the relevant foreign country relating to cultural property prohibited the export; and
• the object had been imported into Australia.

The Court held that some of the items were likely to be fakes and that the Commonwealth had not established beyond the balance of probabilities that others had left China since November 1982 when the Act came into operation.

It ruled that the Commonwealth had failed to establish on the balance of probabilities that any of the seized objects were liable to forfeiture under the provisions of the Act. An order was accordingly made for the return of the objects to the gallery.

Success and ruination

Following the recent item on Viscopy, the visual arts copyright collective rights administration body, it is interesting to note the media release featuring 'top up' support for the Australian droit de suite regime that is administered by CAL -

Minister Crean also announced that Australia's successful resale royalty scheme, which provides a five per cent payment to artists from the resale of their artwork, will be funded for two more years.

"As a key election commitment of the Australian Government, the resale royalty scheme has already generated over $650,000 in royalties from over 3500 resales of art by more than 390 artists," he said.

"The Australian Government will provide $700,000 over two years for the collection and payment of royalties to visual artists as well as for a post-implementation review of the scheme. As the income from resales increases, it is anticipated the scheme will become self-sustaining.

One commentator - less than enthused by the droit - stated that -

The scheme was premised on a market size and turnover that was, even at the height of the boom, wildly overestimated by a factor of at least 2 or more. Even a fully retrospective and compulsory scheme such as enacted in the UK, would not be self-funding in Australia; the long term market here is simply not large enough.

This government's policies have had a devastating effect on the art market: the resale scheme has undermined confidence resulting in reduced demand and, at the same time the ruling on SMSF (Self-managed super funds) will result in a massive over-supply of indigenous art for resale on to a reduced market. In this situation, the very idea that a scheme premised on levying on the value of art resales ever becoming even vaguely self-funding is ludicrous.

The paradox is that the Australian government has done the resale royalty, at a secondly instrumentation level, as professionally as it could be done and the Act itself reflects the constraints of a constitution that set out very consciously to embody the principles of responsible representative government: therefore, the Australian scheme is a lawful scheme. However, the messy reality is clear proof that resale royalties, at the level of principle, if done lawfully and properly, are bad policy".

An observer might be forgiven for wondering whether the scheme has "had a devastating effect on the art market" and "undermined confidence resulting in reduced demand", given that Australia continues to experience the aftermath of the Global Financial Crisis. The droit may indeed be "bad policy" but the messy reality is that we lack "clear proof". (Collective rights schemes also, of course, take time to bed down.)

The lament that the droit will damage the Australian art market was heard when the scheme was first proposed, while it was being introduced (with a simplification in December last year noted here) and since it was introduced. Presumably the same lament will be made in future.

It would be fascinating to see substantive data that differentiates between the effect of the droit and the impact of the GFC. In practice such data isn't likely to be obtainable, in contrast to anecdotes from dealers (most of whom, like some overseas peers, have been opposed to the scheme from the beginning and prophesied imminent ruination).

In practice the Australian scheme is probably neither as pernicious nor as wonderful as claimed by opponents and proponents.

From the perspective of 2012 I'm reminded of the 2004 IPRIA paper 'Droit De Suite Down Under: Should Australia Introduce a Resale Royalties Scheme for Visual Artists?' [PDF] by Emily Hudson & Sophie Waller that concluded -

Evidence of the effect of introducing resale royalties on the Australian art market is inconclusive. As can be seen from the discussion above, there has been much debate in the literature about the benefits and costs of introducing a resale royalty scheme. As stated in the Myer Report: 

it can probably be concluded that, ‘given the state of the empirical evidence in hand, intelligent, well meaning persons, equally well informed about economic theory, may well disagree about the efficiency of artists’ resale rights.’

The statistics cited in this article show that artists generally have a low income compared with the rest of the workforce. There is also evidence that Indigenous artists often receive less than market value for their works. However, resale royalties will not address either of these issues. A resale right will be in name only for most artists; only a select group of artists, many of whom are deceased, white and male, will ever receive any benefit. This benefit must also be viewed in light of the uncertain effect that resale royalties will have on the art market, and thus on the livelihood of the majority of artists. Although evidence from overseas suggests that resale royalties may cause art sales to move to jurisdictions that do not impose a royalty, it is unclear what effect implementing resale royalties would have on the Australian art market. It may be helpful to undertake a comprehensive empirical study in relation to possible effects of resale royalties on the Australian market. 

Other justifications for the introduction of a resale royalty right in Australia include the ‘unjust enrichment’ of dealers and investors at the expense of artists and the benefit from harmonisation with other laws, particularly if the growth in the market for Indigenous works spreads overseas. However, there are strong countervailing arguments that royalties rarely accrue and only tend to benefit established artists and their heirs, who may already have a handsome income stream from new sales and commissioned works. Resale royalties have not been shown to increase artistic output or the dissemination of works. 

To the extent that it wishes to improve the financial situation of struggling artists, Australia could consider introducing a similar scheme to that in Germany, where, in addition to the payment of a royalty to individual artists, money is paid into a central fund that is used to benefit all artists. The use of targeted funding and support is particularly important for Indigenous artists, whose living conditions and income are at deplorable levels. Exploitation of Indigenous artists should also be addressed directly by the government, for instance through existing trade practices legislation. 

If Australia does pass a droit de suite, it is clear that a central collecting society will be essential to administer the scheme. Funding of such a society will be a crucial question. Analysis of overseas schemes suggests that the collecting society generally deducts an administrative fee out of the royalty collected; an important question in Australia would therefore be the level at which this fee will be set. A final question is whether the collecting society should receive additional government funding to assist with investigation and enforcement measures. If government support is required, an obvious criticism is that money could be better spent directly on artists. 

Whether Australia decides to implement a resale royalty scheme or not, further research and public discussion should occur. The discussion that has resulted from the release of the Resale Royalty Bill and the Discussion Paper is a good start. However, there has been limited empirical research undertaken in regard to resale royalties in Australia, and if a decision is made to introduce resale royalties now, it will be based on speculation rather than solid data as to its possible benefits and costs.

There is still speculation. Unfortunately the national Government is unlikely to fund the research that will provide the authoritative data needed to quell the alarums and huzzahs.

Yet again, with feeling

The 4 August issue of The Art Newspaper reports another push in the US for a national droit de suite (visual arts resale royalty) regime.

The regime would be restricted to auction houses, with an exclusion of commercial galleries and private sales.

Its report states that -

The Artists’ Rights Society (ARS), the main copyright and licensing collecting agency in the US, is pushing for legislation that would see droit de suite, or artists’ resale rights, become federal law. ... the new legislation will be different, said Theodore Feder, president of the ARS. Resale fees “would not be applied to galleries”, partly because they are such vocal opponents of droit de suite, “but also because auction sales are public, while gallery sales are private, so it would be difficult to track resales”.

The late Senator Edward Kennedy tried to enact the resale royalty in 1987 as part of his original draft for the Visual Artists Rights Act (VARA) but it proved so contentious that it was removed from the otherwise successful act. Now, the “person leading the charge is Bruce Lehman”, said Feder, referring to the former Commissioner of the United States Patent and Trademark Office who helped draft the original 1976 US copyright law and the 1998 Digital Millennium Copyright Act.

The plan has attracted the usual comments, some disingenuous. The report notes that -

“The rights collecting associations, the principal lobbying force for enacting the resale right in the US and abroad, would break out the champagne and dance in the streets,” if the resale law was made legal, said John Henry Merryman, emeritus professor of art and law at Stanford Law School in California and author of Law, Ethics and the Visual Arts. “The small minority of artists whose works have a significant secondary market would get richer. The great majority of artists, who have no significant secondary market, would have fewer gallery exhibitions and decreased sales in the primary market,” he said, adding that an application of the tax to auction sales only “would be seen as unfair discrimination. [The auction houses] would certainly lobby against it.”

Dealers also oppose the measure. Lucy Mitchell-Innes, the president of the Art Dealers Association of America (ADAA), said that: “Although the ADAA and its membership is a strong supporter of artists’ rights ... it has long been our belief that a droit de suite law in the US would be extremely difficult to enforce and therefore be ultimately unsuccessful. The US collector base, many of whom are very generous philanthropists ... would be resistant to a resale tax.”

European regimes have not, I note, meant the end of civilisation (or of auction houses, dealers and commercial galleries) although it remains a moot question as to whether the droit is the best way to reward new/established artists and their estates.