Ninth Circuit Draws Fine Line Around Fine Art Resale Royalties

In a partial victory for artists such as Chuck Close and the Sam Francis Foundation—and for other visual artists who sold early works for rent money before establishing their name and value—the Ninth Circuit Court of Appeals last week resurrected part of a California law that enables fine artists to share in the profits from resale of their works. Whether the state law interferes with federal copyright laws remains to be seen.

The 1976 Resale Royalty Act required California art sellers or their agents to locate artists after selling their work and to pay them 5 percent of the purchase price. The well-intentioned law ran afoul of the so-called dormant Commerce Clause by purporting to regulate not only sales in California, but also all sales on behalf of California domiciles, even if the sale itself occurred wholly outside of California. The Commerce Clause, contained in Article I, Section 8, of the U.S. Constitution, permits Congress to regulate interstate commerce, and by implication the dormant Commerce Clause prohibits states from regulating commerce taking place outside of their own boundaries. See, e.g., Healy v. Beer Instit., 491 U.S. 324 (1989). The Resale Royalty Act was therefore struck down in its entirety by the Central District of California. On appeal, however, the Ninth Circuit severed the offending "California domicile" portion, leaving intact the remainder of the law regulating resale taking place in California.

The decision was handed down by a divided en banc court, and included concurring opinions that would have more finely limited the law's application, essentially exempting out-of-state auction houses Christies, Sotheby's, and eBay, which had successfully challenged the law's constitutionality in the district court. The Ninth Circuit majority did not draw the line as fine as the concurrences, but also did not paint with as broad a brush as the district court. It agreed that, by attempting to regulate sales by California domiciles wherever they may occur, the legislature violated the Commerce Clause. Where the district court struck down the entire Act, however, the Ninth Circuit found it permissible and appropriate merely to sever the portion applying to California domiciles.

This effectively lets the auction houses off the hook for non-California sales. The interesting question remains: does the...