01/17/2012 03:51 pm ET Updated Mar 18, 2012

Resale Royalties Are Roiling the Art Market in the U.K. and California

On both sides of the Atlantic, the issue of artists' resale rights has jumped to the fore. (What are artists' resale rights? We'll get there.) In the past 15 months, several lawsuits by artists have been filed against collectors, art galleries and auctioneers Christie's, Sotheby's and even eBay for failing to pay a percentage of the profits, referred to as royalties, when artworks are sold in California on the secondary market. The lawsuits are based on a five percent resale royalties law enacted in the state of California in 1977, where it has been widely ignored by galleries, auction houses and artists themselves until recently. (Compliance with the law is incumbent upon those who sell artworks on the secondary market. If they are unable to locate the artists to make a royalty payment, the California Arts Council will hold the money and attempt to find the artists. Since 1977, the Council has only collected approximately $350,000 for the payment of more than 400 artists, according to a spokeswoman.)

"The law has simply not been obeyed," said Lonnie Blanchard, lawyer for Los Angeles artist Mark Grotjahn, who filed a lawsuit in late 2010 against a long-time collector of his, Dean Valentine, for failing to pay him owed royalties following sales.

For their part, the auctioneers have responded by challenging the constitutionality of artists' resale royalties, claiming that it conflicts with the Commerce Clause, which grants the federal government alone the right to regulate commerce between the states.

The idea behind the artists' resale royalties law, which no other state in the union chose to enact, is that artists often sell their work very cheaply at the outset of their careers, which doesn't so much reflect the importance or quality of the art itself as the power imbalance between the artist and the collector. When that work rises in value, it is usually a result of the artist's growing reputation. The artist, to resale royalties advocates, has increased the value of his or her work for the benefit of the buyer who has become enriched at the artist's expense. Resale royalties return some of that value to the artist when the artwork hits the secondary market. These royalties also act as a type of pension for older artists.

"In general, I think resale royalties is a pretty good idea," said painter Chuck Close, who with a number of other artists filed this past October a class-action lawsuit against the auction houses. "I know some artists who were successful in the 1960s and '70s and have since fallen on hard time and could really use the money."

In the United Kingdom, the law is in place but the shouting hasn't stopped. England, which adopted a resale royalty law in 2006, is expanding that law in 2012, much to the chagrin of art dealers and auctioneers. The implementation of the law was staggered, first to involve only living British artists, in order to allow the art market to adjust to the new requirement, but the expansion brings into the mix sales of work by deceased artists, which are greater in number and generally higher in value.

The British law sets a minimum sale price above which the resale royalty comes into play at 3,000 Euros, and royalties are set at the rates of four percent for profits up to €50,000, three percent for profits from €50,000.01 to 200,000, one percent for profits from €200,000.01 to 350,000, one-half of one percent for profits from €350,000 to 500,000.01 and one-quarter of one percent for profits exceeding €500,000.01. The single maximum payment for any one sale is set at €12,000. The London-based Design and Artists Copyright Society, one of the two most significant nonprofit agencies collecting and distributing resale royalties, estimates that artists there have been paid £15.5 million since 2006. When sales of famous deceased artists are added to the mix, the value and volume of royalties are expected to increase four-fold, perhaps more.

Artists in the U.S. and in the U.K are divided on the issue of resale royalties. Damien Hirst has expressed his support for the law, while British sculptor Anthony Caro and painter David Hockney are among a group of artists who signed a petition against it. Caro claimed in a recent email that the law generally "will mainly benefit artists who are already successful." (Still, Tania Spriggens, a spokeswoman for the Design and Artists Copyright Society, said, "no artists have returned their royalties to us. The checks have all been cashed.") A 2010 report on artists' resale royalties commissioned by the European Art Market Coalition found that in continental Europe, 74 percent of all the royalties collected went to artists' heirs, 20 percent went to the collecting agencies and only six percent went to living artists.

Recently, two members of Congress, Sen. Herb Kohl (D-WI) and Rep. Jerrold Nadler (D-NY) introduced a legislation into Congress in December, the Equity for Visual Artists Act of 2011, which would take the provisions of the California artists' resale royalties law and make them national.

If artists are divided on the subject, dealers and auctioneers are not. Jussi Pylkkanen, president of Christie's Europe, called the "extension of the artists' resale right to deceased European artists" in 2012 "a matter of real concern. It will affect the modern art market, which is a key aspect of Christie's activities in London."

"The problems with the law are already evident, and they're just going to get worse," said Anthony Browne, executive director of the British Art Market Federation. The artists' resale royalty "is expensive and complicated to administer, and it will shift buyers and sellers from the U.K., which has lost a considerable amount of global art market share in the past five years, to countries where there is no royalty to be paid" -- such as the United States (he meant New York).

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