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Focus: New artist resale royalty scheme

13 February 2009

In brief: The Federal Government has introduced draft legislation to create a scheme under which visual artists will receive a royalty on commercial resales of their works. Creators of artworks including paintings, drawings, sculptures and photographs stand to receive a 5 per cent royalty on all resales over $1000. Partner Jim Dwyer (view CV) and Senior Associate Marina Lloyd Jones report on this development.

• Which works will attract the royalty?
• Which transfers are covered?
• Who will be entitled to receive the royalty?
• Payment of the royalty
• Duration of the right
• Management and enforcement
• Concerns

On 27 November 2008, the Resale Royalty Right for Visual Artists Bill 2008 (Cth) was introduced into the House of Representatives by the Minister for the Environment, Heritage and the Arts, the Hon Peter Garrett MP, fulfilling an election commitment of the Kevin Rudd Labor Government¹. According to the Explanatory Memorandum for the Bill, the introduction of a resale royalty scheme will 'allow visual artists to share in the commercialisation of their work in the secondary art market'.

Resale rights, or droit de suite, have already been granted to artists in over 50 countries. In 2001, the European Council adopted the Resale Right Directive, implementing the non-mandatory right in article 14ter of the Berne Convention 'to an interest in any sale of the work subsequent to the first transfer by the author of the work'. The United Kingdom promulgated regulations giving effect to the right in 2006. This is not the first time an artist resale right has been mooted in Australia, where artists and their campaigners have been calling for at least a decade for its introduction. The 2002 Report of the Contemporary Visual Arts and Craft Inquiry (the Myer report) recommended that the right be introduced in Australia, and Private Member's Bills to grant artists a resale right were introduced by Senator Kate Lundy in 2004 and by the Hon Bob McMullan in 2006.

Mr Garrett has said that the introduction of the scheme 'will help to address a current imbalance, where visual artists benefit less from copyright than other creators, such as authors and composers'². Visual artists are generally unable to exploit one of the principal rights granted to copyright owners, that of reproduction. While authors of literary, dramatic and musical works reap benefits from multiple reproductions of their works, many visual artists' works are commercialised through the sale and resale of their first original works as chattel property, rather than through the commercial distribution of reproductions. Further, visual artists are not afforded an exclusive right to display their works publicly (unlike the exclusive right of public performance given to authors of literary, dramatic and musical works). The end result is that a number of people benefit from the increased value of artists' works but the artists themselves do not.

The new right is particularly targeted at assisting Indigenous artists, who often negotiate poor deals when they sell their paintings. In the Second Reading Speech, the minister stated that the scheme is not just for artists but is also aimed at increasing the transparency of the art market to prevent exploitation of artists, particularly Indigenous artists, by 'unscrupulous dealers'.

Works by Indigenous artists, which accounted for almost 25 per cent of auction sales in 2007, are often resold for substantial sums further down the track. Warlugulong, a painting by the late Indigenous artist Clifford Possum Tjapaltjarri, was sold in 1977 for $1200, acquired by a dealer in 1996 for $36,000, and bought at auction in 2007 by the National Gallery of Australia for $2.4 million. Neither the artist nor his estate would have seen any portion of these last two sale prices.

Which works will attract the royalty?

The 'resale royalty right' is defined in the Bill as the right to receive resale royalty on the commercial resale of an artwork (clause 6). Under clause 7, an artwork is defined as 'an original work of graphic or plastic art' that is created by, or produced under the authority of, an artist or artists. Works of graphic or plastic art include pictures, collages, paintings, drawings, engravings, prints, lithographs, sculptures, tapestries, ceramics, glassware and photographs. Buildings (or drawings, plans or models for buildings), circuit layouts and original manuscripts of writers and composers are specifically excluded (clause 9). According to the Explanatory Memorandum, the definition of artwork would cover other forms of original visual arts or craft, including weavings, installations, fine art jewellery, digital and video art, multiple originals produced in a limited edition, and print-making and casting techniques that use a template or mould³.

Clause 7 is intended to cover works of art from which artists have a limited ability to earn money by exploiting their copyright through reproductions, public performances or broadcasts, and whose value on the secondary art market depends largely on their originality. So, while authorised limited edition artworks are covered, mass-produced posters and photographic or other prints, films and industrial design will be excluded⁴. It is unclear whether artistic works to which the copyright-design overlap provisions in Part III Division 8 of the Copyright Act 1968 (Cth) apply are excluded from the scheme.

Which transfers are covered?

A commercial resale of an artwork will be deemed to have been made where ownership is transferred from one person to another for monetary consideration subsequent to the first transfer of ownership (clause 8). A transfer will not attract the royalty if it is made by gift or other non-monetary means, or if it does not involve an 'art market professional', defined to include auctioneers, art dealers and gallery or museum owners or operators. While the second transfer of ownership must be for monetary consideration, the first transfer will include transfers from the artist by sale, gift, exchange for goods or services, or inheritance. According to the Second Reading Speech, this 'will avoid situations in which artists are pressured to exchange their works rather than sell them at the first point of transfer to delay triggering the resale royalty right until the third transfer of ownership'⁵.

The right will apply to resales of existing works first acquired after the legislation commences, including works created before such commencement and works by deceased artists (clauses 8 and 11). The royalty on works acquired before this commencement will not be payable until the second resale after commencement. Some stakeholders have suggested that the royalty should apply to resales of works originally acquired both before and after commencement (as is the case in all other countries where the right has been introduced). Noting the current economic circumstances, Mr Garrett stated in the Second Reading Speech that this approach was taken:

to ensure that purchasers of artworks are aware at the time they make their purchase that a royalty may be payable to the artist if they choose to resell the work. It will also allow the art market to adapt gradually to the new right.

This point of difference may be a stumbling block in obtaining reciprocal protection from other countries including the UK (see discussion below).

Who will be entitled to receive the royalty?

The following entities will hold the resale royalty right:

• where the artwork was created by a single, living artist – the artist (sub-clause 12(1));
• where that artist is deceased – the artist's successors in title (sub-clauses 12(2) and 12(4));
• where the artwork was created by multiple, living artists – each artist (sub-clause 12(3)), each of whom will be entitled to an equal share, unless they have agreed to apportion shares in the royalty differently (sub-clause 16(1)); and
• where the artwork was created by multiple artists but at least one is deceased – each artist or (where deceased) their successor, who will receive the share to which the artist would have been entitled had they been alive at the time of the commercial resale (sub-clause 16(2)).

The Bill sets out a 'residency test', which both the artist and (where relevant) their successor/s must satisfy to gain entitlement to the royalty (clause 14). To satisfy this test, an individual must be an Australian citizen or a permanent resident of Australia (sub-clause 14(1)). A corporation must be incorporated under the Corporations Act 2001 (Cth) or carry on an enterprise in Australia (sub-clause 14(2)). An unincorporated body carrying on an enterprise in Australia will also satisfy the test (sub-clause 14(3)). It is anticipated that the government will attempt to establish arrangements with other signatories to the Berne Convention acknowledging the right to a royalty for Australian artists whose work is sold in those countries. If such arrangements are put in place, that country may be prescribed as a 'reciprocating country' on the basis of their implementation of Article 14ter of the Berne Convention.⁶ A national or citizen of a reciprocating country, or a corporation incorporated under the law of, or carrying on an enterprise in, such a country, will satisfy the residency test.

Artists' successors in title must also satisfy a 'succession test' (clause 15). The decision to extend the right to successors differs from the approach currently taken in the UK, where only living artists may benefit. In implementing the Resale Right Directive, the UK opted to use a derogation to grant the right only to living artists, but not their heirs and beneficiaries. The UK Government recently notified the European Commission that it intends to maintain this derogation until 2012.

The reference in clause 7(1)(b) to an artwork created under the authority of the artist is said in the Explanatory Memorandum to provide for situations where an artist creates a design and directs a production team (such as a bronze foundry) or a master craftsman (such as a printmaker) to produce, or assist in producing, the artwork. However, an 'artist' is not defined in the Bill, and there clearly remains scope for ambiguity in this area.

Payment of the royalty

The Bill imposes a minimum resale price of A$1000 (including GST) before the royalty becomes payable (clause 10). This threshold has been criticised as too high; however, it is worth noting that a work resold at $1000 would only entitle the artist to A$50. Above the threshold, royalties are uncapped and calculated at a flat rate of 5 per cent (clause 18).

Liability to pay the royalty arises at the time of commercial resale (clause 21). The seller in a commercial resale will always be liable to pay the royalty, and one of the other parties to the sale (being, in order, the agent for the seller, the agent for the buyer, or the buyer) will be jointly liable (clause 20). The government anticipates that, in practice, the decision regarding who will actually pay the resale royalty will be worked out during contractual negotiations between the parties.

Duration of the right

The right will apply to works resold during an artist's lifetime or within 70 years of their death (clause 32), mirroring the current period of copyright afforded to artistic works. Under clause 33, the right will be inalienable (except where permitted under the succession test), protecting artists from being pressured into assigning their right. The right will also be incapable of being waived (clause 34). However, the holder of the right may notify the collecting society, once it publishes a notice of commercial resale on its website, not to collect or enforce the right on his or her behalf (sub-clause 23(1)).

Management and enforcement

The minister will call for tenders for an organisation to act as the collecting society, which will administer the scheme and collect resale royalty payments. Division 5 of the Bill sets out the manner in which the collecting society is to operate, including displaying on its website notices of commercial resales, collecting payments and enforcing the right, paying out royalties to rights holders and requesting information about commercial resales. Sellers must notify the collecting society when a work is resold on the secondary art market. The collecting society will keep detailed records on all relevant sales and will need to publish key data in its annual report, which will be tabled in Parliament.

Under clause 39, the collecting society may apply on behalf of the Commonwealth to the Federal Court or the Federal Magistrates Court for an order that a person has contravened a civil penalty provision of the Bill (sub-clause 39(1)). The civil penalty provisions relate to failure to provide the collecting society with notice of a commercial resale (clause 28: maximum penalty, $22,000 for an individual and $110,000 for a corporation), and failure to respond to a collecting society request for information regarding a transaction believed to be a commercial resale (clause 29: maximum penalty, $11,000 for an individual and $55,000 for a corporation).

Concerns

Some fear that the resale right will have a negative impact on the Australian art market, and that works will be resold in New Zealand, where no such right exists. However, the experience in the UK is cited to allay this concern. A 2008 study commissioned by the UK Intellectual Property Office found no evidence that the introduction of the right had diverted business away from the UK or reduced prices. The size of the UK art market had, in fact, grown as fast (if not faster), and prices had appreciated faster, than in jurisdictions where there was no such right⁷. Another concern relates to the administrative costs associated with compliance. The Australian Copyright Council points out that the royalty will be payable on a small number of resales and that art market professionals in the UK were found generally to take 10 minutes a month to meet their obligations under the resale royalty scheme.

The Bill has been referred to the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts, to report by 20 February 2009. The committee invited interested parties to make submissions by 23 January, and held public hearings on 5 and 6 February. The artist resale right is currently expected to be in place by 1 July 2009.

Footnotes

1. In its 2007 arts policy, New Directions for the Arts, the Federal Government promised to implement a resale royalty scheme for visual artists. In May 2008, the Government sought responses to a paper entitled Artists Resale Royalty Scheme for Visual Artists – Framework and Parameters, consulting with key stakeholders.
2. 'Artists to benefit from Resale Royalty Right', media release from the office of the Hon Peter Garrett AM MP, Minister for the Environment, Heritage and the Arts, 3 October 2008.
3. Pages 4 to 5.
4. Explanatory Memorandum, p.5.
5. Commonwealth Hansard, 27 November 2008.
6. Explanatory Memorandum, p.10.
7. IP Institute, 'A study into the effect on the UK art market of the introduction of the artist's resale right', January 2008, K Graddy, N Horowitz, S Szymanski.

Published 13 February 2009.

For further information, please contact:

• Jim DwyerPartner, Sydney
  Ph: +61 2 9230 4873
  Jim.Dwyer@aar.com.au
• Tim GolderPartner, Melbourne
  Ph: +61 3 9613 8925
  Tim.Golder@aar.com.au
• Peter JamesPartner, Brisbane
  Ph: +61 7 3334 3360
  Peter.James@aar.com.au
• Ted MarrPractice Manager - Greater China Intellectual Property, Beijing
  Ph: +86 10 8518 8128
  Hong Kong
  Ph: +852 2903 6210
  Ted.Marr@aar.com.au

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