Commerce Clause and the Resale Art Market: California Artists May Soon Lose Right to Resale Royalties

California’s fine artists may soon be losing the right to resale royalties under the California Resale Royalties Act. The federal court for the Ninth Circuit Court of Appeals seemed to be persuaded to strike down the law during an April 8, 2014 hearing on a court case challenging the Resale Royalties Act.

The case was brought in 2011 by a group of artists seeking the 5% of royalties due to them under the California Resale Royalties Act. Under the California law, fine artists are entitled to a droit de suite, or resale royalty right, to five percent of sales or resales of their artwork, whether it occurs in California or elsewhere. The law provides for royalties to be paid by the seller of fine art whenever a work of fine art “is sold and the seller resides in California or the sale takes place in California.”

The lawsuit was brought against a series of world-reknowned auction houses, including Sotheby’s,yh Christie’s, and online retailer eBay. The fine artists argued that their work was regularly sold and re-sold on these forums, but did not provide them with any royalty rights as provided by California law. The Defendants, on the other hand, argued that California’s Resale Royalties Act violates the U.S. Constitution by attempting to regulate commerce between different outside of California, in violation of the U.S. Constitution’s commerce clause, which prohibits individual states from enacting laws that interfere with interstate commerce among and between states.

Earlier in 2012, the federal district court for the central district of California ruled in favor of the Defendants, finding that California’s regulation of transactions outside of California “clearly violated the commerce clause,” and exerted unlawful control by California over the activities, transactions, and citizens of other states. At the Ninth Circuit Court’s hearing of the appeal of that lower court decision, the Court of Appeal judges seemed inclined to agree, and appeared to be persuaded by the arguments raised by the attorneys for the auction houses. The Plaintiffs, however, urged the Court to reverse the lower Court ruling and uphold the Resale Royalties Act.

If the Act is struck down, then California fine artists will no longer be able to receive resale royalties on resales of their artwork. Attempts to enact a nationwide federal resale royalty act have thus far not been successful.

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