he U.S. Court of Appeals for the Ninth Circuit this month held that the California Resale Royalties Act (“CRRA”) – a state statute that provided visual artists with ongoing downstream royalties for sales of their works occurring after the initial sale – is invalid as preempted by federal copyright law. The court, in Close v. Sotheby’s, — F.3d –, No. 16-56234, 2018 WL 3322222 (9th Cir. July 6, 2018), decided that visual artists are barred from receiving any ongoing royalties arising from later sales of their work due to the federal “first sale doctrine.” The decision affirms the U.S.’s long-held perspective on the limited nature of certain copyright privileges.
The provision of the CRRA at issue in Close granted artists an un-waivable right to 5% of the proceeds on any resale of their artwork under certain circumstances. Specifically, the CRRA required the seller of a piece of artwork (or the seller’s agent) to withhold 5% of the resale price and pay it to the original artist, or if the artist cannot be found, to the California Arts Council. The purpose behind the statute was to help visual artists capitalize on the appreciation of their work by requiring payments following the work’s first sale. The statute was effective on January 1, 1977 as “the first and thus far only, American recognition of the droit de suit,” or “right of following on” as recognized by France and other civil-law jurisdictions.
Under U.S. federal law, however, copyright owners effectively lose the right to control, limit, and collect royalties on later transfers of their copyrighted works once those works leave their hands. This “first sale doctrine” was codified by The Copyright Act of 1909 and was later retained in section 109 of the Copyright Act of 1976 (effective January 1, 1978), reflective of the “common law’s refusal to permit restraints on the alienation of chattels.” Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 538 (2013). The 1976 Act also contains an express preemption provision stating that “no person is entitled to any such [copyright] right or equivalent right in any such work under the common law or statute of any state.” 17 U.S.C. § 301. It is the combination of sections 301 and 109 which elevate the federal first-sale doctrine over the CRRA and which formed the basis for the court’s decision.
Close v. Sotheby’s dealt with artists’ claims arising both before and after the effective date of the 1976 Act, which complicated the court’s analysis. The plaintiff artists claimed they were entitled to resale royalties pursuant to the CRRA notwithstanding the federal first sale doctrine. But the court took a close look at the time line between when the claims arose and the effective dates of the applicable statutes and found that different rules applied to different time periods. The court found there was a timeframe when the first sale doctrine could coexist with state statutes like the CRRA, after which the first sale doctrine would expressly preempt “equivalent” state laws. The court explained the period of coexistence began with the effective date of the CRRA on January 1, 1977, until the effective date of the 1976 Act on January 1, 1978. Essentially, while the 1909 Act was still effective, the CRRA could continue to apply given that the 1909 Act, while including a first sale doctrine, did not include a preemption provision. Ultimately, the court held that artists with claims arising after the effective date of the 1976 Act were not entitled to royalties or damages due to the 1976 Act’s express preemption provision—given that, in the court’s opinion, the subject matter of the CRRA fell within the subject matter of copyright and provided rights that were equivalent to exclusive rights under the Copyright Act. However, those claims arising from January 1, 1977 to January 1, 1978, were remanded to the district court for further analysis.
The Close holding is relevant to any California visual artists who were working under the assumption they would receive royalties following a subsequent sale of their artwork regardless of when that work was first created, published, or sold. The court significantly narrowed the window during which CRRA royalties are viable and foreclosed the possibility of downstream royalties for all artists of the modern era.
Although California was the only state to have offered a law like the CRRA, this case is more widely pertinent as it affirms the U.S. position on the limited nature of post-alienation rights of copyright holders, which is in contrast to those nations that recognize the droit de suit under the Bern Convention for the Protection of Literary and Artistic Works, which states that artists possess an “inalienable right to an interest in any sale of the work subsequent to the first transfer by the author of the work.” Should other states outside the Ninth Circuit seek to enact a statute similar to the CRRA, the Close decision will provide strong persuasive (albeit not binding) authority that the Copyright Act preempts any such right. The impact of the decision may be a chilling effect on the enactment of such statues or, if the legislatures of the states are not deterred, an increase in litigation between artists and art dealers over downstream earnings.