Droit de Suite Coming to US?

282299 ChuckClose 0Droit de Suite: a right recognized by the legislation of several member countries of the European Union whereby an artist, or his or her heirs, is entitled to a share of the price of a work of art if it is resold during the artist's lifetime or for 70 years after his or her passing.

Could a version of Droit de Suite pass on Capitol Hill? Recently-introduced legislation and a number of lawsuits challenging similar California state rules paint a muddy picture of how a resale royalty plan would affect the North American art market, and more specifically, negatively impact living artists and the heirs of those recently deceased that it is meant to protect. Hold on say the experts. (Links to related articles below. No need to discuss the details here.)

First, let's paint the picture. Many onlookers shudder when they read about the enormous amounts being paid at auction or in the secondary resale market for artworks. For example, a Jackson Pollock action painting purchased by Ben Heller directly from the artist in the '50s for the then ghastly price of $8,000 would now command upwards of $100 million if sold at auction. Art history books are riddled with accounts of many of our most cherished master painters dying penniless, often leaving their survivors to live in squalor while works by the artist proceed to earn huge profits for collectors, dealers and auction houses as prices for rare and/or seminal pieces skyrocket.

Similarly, living artists often sell their works for minimal prices during their emergence when survival just to paint another day is their reality. Billionaire Damien Hirst once sold works on paper for cab fare. Jean Michel Basquiat gave napkin scribbles to Andy Warhol in exchange for lunch. In time, as the value of their work escalates, the artists receive nothing from resales at auction or through secondary dealers.

Before discussing the ramifications of such a law, the basic question must be asked. Do artists deserve to receive royalties from sales on works they no longer own?

From a purely legal perspective as per the constitution and prevailing commercial law, the answer is no. Once you sell an object, your rights to future profit end. We are not talking about licensing or copyright as is the case of computer software or music. In these cases, you are purchasing a right to use the software or listen to the music, not to resell it. With artworks. we're essentially talking about a product for sale, similar to a car or a television. Ford does not have the right to a royalty payment if you trade in your old Pinto for a new Taurus anymore than Sony has the right to a percentage of the sale of your old 20" CRT when you decide to buy a wide-screen LED.

As always, art may be different. In fact, art may be closer to the international soccer (football) player market than to any hard commodity. In many cases, the team that originally develops a player receives a percentage of future transfers as the player improves and his value must be passed upward to better teams capable of fielding more costly lineups and covering higher salaries through increased gate revenues, better broadcasting rights and lucrative participation in international tournaments. These "royalties" are calculated at time of transfer and written into contracts as a way of insuring that the player is always playing at the appropriate level and his original team does not suffer for moving him early rather than wait a few more years at a level below his ability until his value increases. In general, this system works well for the players and the teams. Could a similar plan be better for artists and their gallery reps?

Supporters for legislating obligatory resale royalties paint a similar picture, claiming that the value of artists' art escalates in value during their lifetimes due to continued career advancement as well as heightened exposure through important exhibitions, participation in key biennials, international fairs and potential museum placements. Supporters say the artists should be compensated for getting better and thus raising the value of all of their production dating back to Day One. From a purely humanistic viewpoint, it seems like the correct thing to do. Unfortunately, moral and ethical behavior are legally toothless.

The percentages being bantered about do not sound unreasonable. In Europe, the highest royalty percentage is 4% and scales down to as little as .25% based on resale price of the art. The California law, recently deemed unconsitutional, was 5%. The legislation introduced to US congress calls for 7%, with a whopping 60% of that going to the collecting companies and a reserve fund to support non-profit organizations. For example, an artist who has one of his pictures resold for $10,000 would receive only about $280 of resale royalty. Doesn't sound like much, but the naysayers in the art industry are screaming foul.

Why would art industry professionals so blatantly bite the artistic hands that feed them, especially when auction houses charge much higher buyer/seller premiums and galleries retain up to 50% on sales? Many reasons:

  • The playing field is not level. Of 50 states, only California has a similar law. In Europe, roughly only half of the nations honor Droite de Suite. Insiders believe that this would simply steer sellers to move the works to non-abiding states or countries such as Hong Kong that have no resale royalty plan. Art entities and their respective local governments are well aware of the economic impact of major fairs and auction weeks. They do not want to lose important tourist dollars, never mind a few percentage points on each transaction that is often the difference between a sale and a pass.
  • The fear is that collectors in general will either buy less, or buy cheaper, thus reducing artists' income across the board. This includes primary sales for less-important artists, the vast majority of whom will never see their works auctioned.
  • Many collectors are buying as investments. The top 1% who are buying trophies and/or works by the prime artists know that those investments are almost as secure as investing in other commodities. They see art as hard currency. Regulations and lowered earning potential, even if only 7%, will steer some away.
  • Collectors want to purchase artwork without strings attached. While they must pay capitol gains tax on the profitable sales of properties and stocks, art is unregulated. Registering all art transactions brings these massive purchases and sales under the public light that many prefer to avoid.
  • The amount of paperwork required to track down artists and their heirs would be prohibitive for smaller art entities. Since artists rarely receive notices about buyers and sellers involved in initial purchases, let alone secondary resales of their works, the onus could never be placed on the artist to make claims.
  • If auction houses are obliged to withhold royalties for artists, many believe this will only serve to change their business model to favor more direct backroom sales where accurate resale prices are nearly impossible to register and track.
  • Some dealers offer extended payment plans or barter for other goods. Since royalty payments would be due within a few months of the resale, some would be forced to pay before receiving funds.
  • Those who will be impacted most severely are small entities that work on much slimmer profit margins. Any additional taxes or royalty plans could make them non-competitive.

Pollock-One-Number-31-1950Ben Heller bought Pollock's One for $8,000 in the '50s. Now at MoMA, it is valued at over $100m.Copyright - Museum of Modern Art, NY

One recent transaction to which I am privy was a South American artist who received $5,000 from his dealer for the apparent initial gallery sale of a $10,000 painting. Said dealer purportedly purchased the important work himself and flipped it at auction less than 3 years later for $100,000, in so doing he earned multiple times more than the artist and much more than the artist would have received had the work or a similar new work been sold at the gallery under a regular sale. It is not uncommon over the past 100+ years for dealers to purchase entire studios of work at hugely discounted rates, sit on them for a few years and then bank enormous profits far beyond the regular 50/50 gallery/artist splits. Common theme in the big world of art? The most successful artists do well, but as well as they do, others often do MUCH better.

Galleries and representatives explain their earnings by saying that art has no value without them, that the effort they provide in marketing, exhibiting, courting well-heeled clients and supporting careers justifies their profits. They're correct, for primary sales of emerging and mid-career artists. But isn't it also true that artists throughout their careers also perform an integral role in sending prices for their works skyward? Let's just say that you're only as good as your last show, meaning artists must work diligently to at least stay on course if not improve. And the morbid economist could also claim that the artist deserves something just for the act of dying, in essence setting off the supply/demand mechanics as an infinite commodity becomes finite.

Let's be honest. This isn't about .25, 4, 5 or even 7% royalty payments. This is about keeping the inner workings of the art industry in the shadows where it is easier to control. The less paperwork and regulation the better for the players, except of course the artists.

The easiest method to avoid these issues is for the art industry to act responsibly by offering to provide stipends to artists for whom they've profited enormously. Rather than legislate, it behooves dealers and auction houses to remember that there is no art market in which to maneuver without artists. But as often is the case, money talks, and the industry is far more apt to support the rights of buyers over producers. Once again, only in the art industry.