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Sell Your Monet: Statutory Out-of-State Art Royalties Struck Down

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By Casey C. Sullivan, Esq. on May 07, 2015 4:01 PM

Californians who resell art out-of-state will no longer have to pay a statutory royalty to the artist. Under the California Resale Royalty Act, a seller was required pay a five percent royalty to the artist if the seller is a California resident selling out-of-state or if the sale takes place in California. That out-of-state provision is an unconstitutional violation of the Dormant Commerce Clause, the Ninth Circuit, sitting en banc, ruled on Tuesday.

Under the Act, if a San Franciscan auctions off a sculpture by a German artist in New York City, the artist is owed the royalty. Similarly, a royalty is required if a Brazilian businessman buys a photograph by a Chicago artist while passing through LA. Change "San Francisco" to "Paris" or "LA" to "Detroit" and no payment is needed in either scenario.

The Dormant Commerce Clause

When artists brought suit against Sotheby's, Christie's and eBay for failing to pay artists their cut, the entire Resale Royalty Act was struck down as an unconstitutional violation of the Dormant Commerce Clause. You won't find the Dormant Commerce Clause in the constitution, of course. Rather, it's a corollary to the Commerce Clause, which gives Congress the authority to regulate trade between the states. That authority implies a reverse clause, limiting states' ability to occupy the Congress's role.

Under the Dormant Commerce Clause, states cannot discriminate against or unduly burden interstate commerce. But that's just what the out-of-state sale clause of the Resale Royalty Act does, courts found. California cannot regulate commerce that takes place wholly outside the state simply because one seller was a Californian.

Must the Whole Thing Go?

When the Ninth Circuit reheard the case en banc, it easily upheld earlier findings that the law was unconstitutional. The real question was whether the Act's unconstitutional provision brought down the entire act, or if it was severable. A finding of severability would allow artists to continue to pursue royalties when the sales took place in California. Thankfully, for the artists at least, the Act included a broad severability provision and the unconstitutional portion could be removed without undermining the coherence of the rest of the Act.

The law had been a thorn in the side of California gallery owners and auctioneers, who saw it as placing an unfair burden on California sellers, according to the Los Angeles Times. They'll still feel the pinch when selling in state, however. Judge Stephen Reinhardt, in his dissent, argued that the law had provided "invaluable benefits for talented artists," allowing them to benefit when their work appreciates in value.

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