[Federal Register Volume 77, Number 182 (Wednesday, September 19, 2012)]
[Notices]
[Pages 58175-58179]
From the Federal Register Online via the Government Publishing 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 http://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 [email protected].
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 http://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 http://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 http://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 http://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 http://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
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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