A federal judge has declared the 1977 California Resale Royalty Act unconstitutional.
Sotheby's lawyers at the US District court in Los Angeles on May 17 described the decision to strike down a highly controversial, widely misunderstood and little enforced state law as "a major victory".
As reported in ATG No 2014, in November 2011 a group of powerful American artists filed class action lawsuits against Christie's and Sotheby's complaining that the auction houses had violated the 35-year-old act.
Under the 1977 California law - unique in the US but similar to the Artist Resale Right laws in the UK - any person selling an artwork by an artist who is either alive or has been dead for less than 20 years must give the artist or the artist's estate five per cent of the sale's proceeds.
The law applies to both works of art sold in California and those sold outside the state by a California resident. It applies only to fine art - defined here as "an original painting, sculpture, or drawing, or an original work of art in glass". Editioned photographs and prints are not included.
The lawsuits alleged that the New York auctioneers routinely violate the Resale Royalty Act by purposefully concealing the identities and residencies of sellers who live in California, thereby getting around paying artists or their estates a royalty.
Certainly the act is seldom enforced: only around 400 painters and sculptors have received a total of $328,000 in resale royalties since 1977.
Hoping to change this, the New York painter Chuck Close, the Los Angeles artist Laddie John Dill and the estates of Los Angeles sculptor Robert Graham and the Santa Monica painter and printmaker Sam Francis were the lead plaintiffs in the class action suit - only the second fully litigated case on the Resale Royalties Act in its 35-year history (the other was in 1981). The auction houses, however, have long believed the act was subject to serious legal challenges and had been looking forward to their day in court.
Their lawyers argued that California's law violates the Commerce Clause of the U.S. Constitution because it is an attempt by one state to control commerce outside its borders.
In granting a motion by Christie's and Sotheby's to dismiss the class-action suit Federal Judge Jacqueline Nguyen agreed. "Under its clear terms, the (Resale Royalties Act) regulates transactions occurring anywhere in the United States, so long as the seller resides in California.
"Even the artist, the intended beneficiary of the CRRA, does not have to be a citizen of, or reside in, California," Nguyen said.
"For these reasons, the court finds that the (law) has the 'practical effect' of controlling commerce 'occurring wholly outside the boundaries' of California even though it may have some 'effects within the state'. Therefore, the (law) violates the Commerce Clause."
Representing the plaintiffs, Los Angeles attorney Eric George said the matter was not over: "For a single federal judge to invalidate the law, more than 35 years later, and without allowing any evidence to be taken, marks a departure from established constitutional law.
"We are confident, as both sides have always believed, this case will ultimately be resolved by the Ninth Circuit Court of Appeals, which already upheld this very statute in 1981."
California is the only state in the USA that has such a law, although the country's main copyright and licensing collecting agency is pushing to see the debate over pan-American artists' resale rights revived on Capitol Hill.
Supported by Bruce Lehman, ex-US Commissioner of Patents, and Senator Herbert Kohls from Wisconsin, the Artists' Rights Society hope to bring an abridged version of resale rights into federal law.
It would apply only to art sold by auctioneers with a turnover of more than $25m and only for sales over $10,000. Dealers and internet auctioneers would not be affected.