Has Time Come for Congress to Create Federal Resale Royalty Right?

Wednesday, November 21, 2012, by Seiko Okada
The Copyright Office, upon request of Congress, is currently asking public comments on creating a federal resale royal right in the United States for visual artists.  See Federal Register for the original notice and notice of extension of deadline (until December 5, 2012).
An artist resale royalty right is a government-created right of the creator of certain visual art works to receive a percentage of the proceeds from the resale of their original works of art.  Art works can be divided into two categories:  duplicable and non-duplicable. Books, music recordings, or films can be repeatedly duplicated, without significant difference in value or quality between “duplicate” and “original” work.  By contrast, for certain visual art works, such as paintings and sculptures, only one “original” work can exist.  A “duplicate” work is no longer original, and carries significantly less value than the “original” work.  Under the market system where artists receive profits when “original” work is sold, creators of duplicable art works can receive profit each time a copy is sold, whereas creators of non-duplicable art works receive profit only one time, when the art work is sold from the artist to the first purchaser.  Artists do not receive profit from subsequent sales, which are sometimes with much higher value than the first sale.  To reconcile this seeming unfairness, a resale royalty right provides visual artists with an opportunity to benefit from the increased value of their works over time.
 An artist resale royalty, or droit de suite (“art proceeds right” or “follow up right ”), originated in France in 1921.  Since then, at least fifty countries, including European and Latin American countries and Australia, adopted the provision.  No federal resale royalty right has been codified in the U.S.  California enacted law providing for a resale royalty right in 1977, and it is the only U.S. state that has such law.  In 1992, the Copyright Office, upon the request of Congress, conducted a study and concluded that there was insufficient economic and copyright policy for enacting resale royalty right.  In 2011, the Nadler-Kohl bill to create a federal resale royalty right was proposed at Congress, and current inquiry by the Copyright Office has followed.  Meanwhile, in 2012, the California Resale Royalty Act has been challenged as unconstitutional restraint of federal commerce power.  The California District court found the Act unconstitutional, and the case is on appeal at the Ninth Circuit.          
Critics of a resale royalty right argue that it is against fundamental common law principles of free alienability of property and freedom of contract.  They also argue that implementation of a resale royalty right will reduce the prices of initial sales and stall the art work market.  Further, they argue that a resale royalty right will not get enforced because of, among other things, the difficulty in locating the artist upon resale of her work.
Proponents of a resale royalty right argue that these issues can be overcome by appropriate legislation.  That time might have come.   
The Copyright Office has identified several specific issues to be addressed: whether a resale royalty right would further incentivize and protect visual artists; whether a resale royalty right would burden the art market, broadly defined as including artists, heirs, investors, and collectors; how a resale royalty right would affect the first sale doctrine; experience in other jurisdictions; changes since the last Copyright Office report of 1992, and; alternatives to a resale royalty.  The Copyright Office further asks comments on specifics of resale royalty right legislation, were it implemented: categories of works to be covered; types of transactions to be covered; whether and how contracts may override a resale royalty right; duration of terms; the minimum threshold resale values to trigger the right; how to calculate royalty; royalty rate, and; how to deal with administrative costs.  In addition, the Copyright Office would welcome comments on relevant issues not raised above.   
Comments may be submitted to the Copyright Office until December 5, 2012.
The author thanks Susan Olive for her insightful guidance.