should artists get royalties?
overview
The introduction in 2010 of a royalty rights scheme for artists in Australia, together with the extension of the scheme to deceased estates in the UK, has revived an acute and often acrimonious debate over the success of these schemes in delivering rewards to artists.
Supporters of royalty schemes argue that, by giving artists a stake in the proceeds from later sales of their work, they provide a fairer reward and an encouragement for artists to continue their work. Opponents of the schemes, on the other hand, raise a number of objections – they argue that the schemes operate “like Robin Hood in reverse”, put domestic art markets in participating countries at a competitive disadvantage; and generate paperwork for very little benefit.
In this article, we examine the various claims and counterclaims and, in the light of the recent Australian experience, we attempt to draw some conclusions about the future.
In this article, we examine the various claims and counterclaims and, in the light of the recent Australian experience, we attempt to draw some conclusions about the future.
Rationale of artist resale royalty schemes
Artist royalty rights schemes exist in various forms in many countries. In broad terms, these schemes give visual artists the right to receive a royalty whenever their work is resold on the commercial art market.
The concept originated in France in 1920 under the name droit de suite, partly inspired by concern over the financial plight of the surviving family of the artist Jean-François painter Millet [1]. The general impetus behind the schemes lies in the perceived disparity between the relative poverty of many artists and the wealth of many collectors and market intermediaries. This disparity is said to arise because, unlike creators such as musicians or writers, the artist’s reward from an artwork is generally limited to their first sale [2]. This sale is often at a relatively low price, as it may occur at a time before the artist’s reputation is made and their talent recognised. So, for example, whereas the late Clifford Possum Tjapaltjarri's painting Warlugulong fetched A$2.4 million in 2007, the artist's only reward was the $1,200 he received for the picture when he initially sold it thirty years before.
The right to royalties is intended to help correct this imbalance by giving artists a continuing and inalienable stake in the prices received from subsequent sales of their work. Particularly in Europe, the royalty is also seen as an expression of the artist’s “moral rights” in the created product. On this view, a royalty on later resales simply reflects the increased value that was always inherent in the work. As this is said to be attributable to the artist’s act of creation, in conjunction with their later body of work and their efforts in establishing their reputation, it is argued that the artist should have the right to participate in the proceeds of those sales [3].
In Australia, where a 5% royalty scheme commenced in 2010 [4], the government said the royalty right had a number of purposes – correcting the financial imbalance already described; enlarging “creative endeavour” by encouraging artists to stay in the industry; increasing the transparency of the art market; enabling Australia to enter into reciprocal arrangements with other participating countries; and providing a “significant statement of the esteem in which Australia holds its visual arts culture”[5].
The concept originated in France in 1920 under the name droit de suite, partly inspired by concern over the financial plight of the surviving family of the artist Jean-François painter Millet [1]. The general impetus behind the schemes lies in the perceived disparity between the relative poverty of many artists and the wealth of many collectors and market intermediaries. This disparity is said to arise because, unlike creators such as musicians or writers, the artist’s reward from an artwork is generally limited to their first sale [2]. This sale is often at a relatively low price, as it may occur at a time before the artist’s reputation is made and their talent recognised. So, for example, whereas the late Clifford Possum Tjapaltjarri's painting Warlugulong fetched A$2.4 million in 2007, the artist's only reward was the $1,200 he received for the picture when he initially sold it thirty years before.
The right to royalties is intended to help correct this imbalance by giving artists a continuing and inalienable stake in the prices received from subsequent sales of their work. Particularly in Europe, the royalty is also seen as an expression of the artist’s “moral rights” in the created product. On this view, a royalty on later resales simply reflects the increased value that was always inherent in the work. As this is said to be attributable to the artist’s act of creation, in conjunction with their later body of work and their efforts in establishing their reputation, it is argued that the artist should have the right to participate in the proceeds of those sales [3].
In Australia, where a 5% royalty scheme commenced in 2010 [4], the government said the royalty right had a number of purposes – correcting the financial imbalance already described; enlarging “creative endeavour” by encouraging artists to stay in the industry; increasing the transparency of the art market; enabling Australia to enter into reciprocal arrangements with other participating countries; and providing a “significant statement of the esteem in which Australia holds its visual arts culture”[5].
Royalty schemes in general
“It will hurt artists in the primary
market” [6]
One of the main arguments raised against royalty schemes is that they actually tend to reduce the amount that artists may expect to receive from the initial sale of their work. The reason for this is that the existence of the royalty enables prospective purchasers to negotiate prices downwards on the basis that, “I will pay you less now because I’m effectively going to have to pay you some more when I resell the work”. This type of argument is said to reflect “economic theory and common sense”[7]. If it is correct, it would particularly affect artists in the early stages of their career, where every dollar is more likely to matter. It would also particularly affect the very large proportion of artists whose work does not resell in the secondary market [8], and whose reward is therefore restricted to that flowing from the initial sale, if any. It may also reduce the likelihood that the work will sell at all, as the more hurdles one places on the original transaction, the less likely the work is to be sold [9].
While this argument has some force, it may be that it considerably overstates the position. The first objection to it is that economic theory and commonsense may not necessarily the key determinants of behaviour in the art market [10]. The second objection is that the buyer from the artist will not really bear the full economic burden of the royalty as, in practice, they may pass it on to the person to whom they subsequently resell [11]. This means that to determine their “loss”, which they will supposedly reflect in the reduced price they pay the artist, they will have to estimate how much, if at all, the price of the work on its resale at some unspecified time in the future will be depressed by the fact that royalty will apply. The complexity of this analysis suggests just how unrealistic it may be. The third objection is that in many cases the argument may simply overstate the amount of customer resistance. Is it really “commonsense”, for example, to say that a buyer who is perfectly happy to pay $1,000 for a work will simply drop out of the market for it if the price were instead to be $1,050? [12].
The argument may have more force in situations where the purchase from the artist is followed almost immediately by a commercial resale, and where the effect (if any) of the future royalty liability may more readily be identified. In Australia, this may occur, for example, in some Indigenous art centres where the turnaround time between up-front payment and later resale may be only a few weeks. However, in most cases, this would be more than countered by the fact that the artist receives a royalty on the resale much quicker than would otherwise have been the case. To the extent that this is a genuine problem – and this is not at all clear-cut – consideration could be given to allowing a limited exemption from the royalty in cases where the first commercial resale occurs within a set time after the initial purchase from the artist [13].
“It will be like Robin hood in reverse"
It is also argued that rewards from royalty schemes are disproportionately skewed in favour of a tiny minority of very successful artists (especially “dead white males”), at the expense of the struggling artists whom, it is stated, the scheme is supposed to benefit [14].
For example, as is often pointed out, in France only seven artists (and their estates) receive 70% of the royalties that have been collected, with Matisse and Picasso’s descendants having massively disproportionate shares [15]. In the UK, in the initial stages of the scheme which started in 2006, the results have not been so extreme. However, there is still significant skewing, with some 80% of royalties initially going to the top 100 artists. In addition, the majority of payments were quite small, with the current median payment reported to be about £360 (equivalent to about $A530) [16]. The prominent artist David Hockney, who spearheaded a group of artists opposing the scheme, described this aspect as a “shameful inequality”[17].
This bias, when combined with the previous argument that the scheme will weaken the primary market for the initial sale of artist’s work, has led one commentator to argue that a royalty scheme operates like “Robin Hood in reverse” – harming struggling artists but benefiting the successful ones [18]. Why, the argument goes, have we gone to so much trouble just to achieve such a result?
Of course, the fact that the scheme heavily favours successful artists should hardly come as a surprise, as it largely just reflects market forces. Are we similarly shocked at the fact that the author of a hugely popular book will derive far more copyright royalties than would a struggling author whose work has a print run of 250? Is this an effective argument against copyright? The point is that the royalty scheme is not primarily intended to be a welfare measure directed at delivering rewards to artists who are unsuccessful or who do not sell their work. On the contrary, it is primarily designed to help artists who are artistically successful – in the sense that their work has become successful – but who are unable to directly participate financially in that success.
In Australia, it might have been expected that the bias in favour of highly successful established artists would be greater than in the UK. For one thing, the Australian market is thinner. For another, the Australian scheme does not impose a cap on individual royalty payments [19] and, unlike the UK scheme until 31 December 2011, is not limited to living artists.
On the other hand, there are factors that may tend to reduce the bias in Australia. These include the fact that the threshold for royalties in Australia (A$1,000) is lower than in the UK (€1,000, which is about A$1,300). More importantly, a factor particularly significant to the Australian market is the emergence of many successful “new” Indigenous artists, resulting in a significant restructuring in the Australian art scene over recent years. The importance of that factor is borne out, to some extent, by the initial results of the scheme. Copyright Agency Ltd, the official collecting agency, reports that over 60% of the recipients of royalties during the first three years of the scheme were Indigenous, and of the total amount of royalties (about $1.9m) paid during that period, over 50% was paid to Indigenous artists [20]. Interestingly, it has also been reported that the first to receive a royalty under the scheme was Gabriella Possum Nungurrayi [21]. This is significant for two reasons. Firstly, because she is was as far from a “dead white male” as it is possible to be; and secondly, because she was the daughter of Clifford Possum who, as we saw earlier, is often cited as a casualty of the pre-royalty position.
The Agency’s figures also confirm the truism, however, that the scheme cannot be a “get rich quick” scheme for the broad population of artists – not that anyone could realistically expect it to be. In the first three years, although an encouraging 700+ artists have benefited from the scheme (from 7,100 resales), most only received amounts ranging from $A50 to $A500 [22].
“Why should estate beneficiaries benefit for so long?"
One particular aspect of the “dead white male” argument arises from the fact that it is a standard feature of most royalty schemes that the right to the royalty continues after the artist’s death, commonly for a period similar to that allowed under copyright law. So, for example, in Australia, royalties will continue to be paid for 70 years after an artist’s death [23].
It may be questioned whether this is appropriate. The primary reason for the royalty is to ensure that the artist shares in the increased appreciation of her or his works, and to thereby provide encouragement to the artist to continue working. Of course, it is understandable that this should extend also to the artist’s surviving family or community, whose personal and financial welfare may be intimately tied to that of the artist. This, it will be remembered was the situation that originally created the idea for a droit de suite, and has particular importance given that a large part of the appreciation in the price of an artist’s work may not occur until after she or he dies.
However, having a 70 year entitlement period means that a number of generations, often with increasingly tenuous connections with the artist, will continue to benefit for many years before the royalty stops. For example, the works of an artist who died as far back as 1945 (and who may have been born in 1860) will still be eligible for royalty under the Australian scheme until 2015. This is the reason why royalties paid to estates will almost inevitably comprise a significant proportion of the total royalties paid. In the UK, for example, Graddy estimates that expanding the scheme there to include deceased estates, which commenced on 1 January 2012, would increase the total royalties by “about fourfold” [24].
The early experience in Australia has been that by far the greater percentage of royalties has been received by living artists [25]. This may come as a surprise to some critics of the scheme. A one-off factor which may possibly affect this is that the widow of one of Australian’s most prominent painters, the late Sidney Nolan, evidently cannot claim royalties as she lives in Britain and has previously relinquished her Australian citizenship [26]. Another more systemic factor is that this percentage may be expected to rise over time as more artists die, and the proportion of qualifying deceased artists therefore rises.
If longer experience with the Australian scheme demonstrates that some limits on the entitlements of deceased estates begin to seem appropriate, various possibilities could be considered. One approach might be to impose a cap on royalty payments made to estates. This would have a dramatic effect on high value sales. In the UK, for example, where a general €12,500 cap applies [27], the royalty on a €2 million sale is fixed at €12,500, whereas in Australia, with no cap, the corresponding royalty would be a much higher $130,000 (equivalent to about €100,000).
A different approach could be to reduce the entitlement period, for example to 25 years. This would allow a reasonable time for post-death appreciation while broadly limiting the direct beneficiaries to the generation that includes the children (if any) of the artist. This would reduce the total amount collected under the scheme, but it may ensure that it was more equitably distributed [28]. It also appears that this reduced period for deceased estate entitlements would not jeopardise Australia’s eligibility for reciprocal treatment with other participating countries under the Berne Convention [29].
“Artists already benefit from resales, or could if they wanted to”
In assessing the possible benefits to artists from the royalty scheme, it is relevant to recognise that, even without the royalty, artists may already participate indirectly when one of their works is resold at a substantial profit. The reason for this is because such a sale has a flow-on effect to the value of their other work. Both sides of this issue can be illustrated by the 1973 sale of Robert Rauschenberg’s Thaw for $85,000 by a seller who had acquired the work from the artist 15 years earlier for only $960. Supporters of a royalty scheme would no doubt identify with Rauschenberg’s famous complaint to the seller, “I’ve been working my ass off for years for you to make all this profit”. On the other hand, opponents of a royalty could equally point to the fact that the resale actually made Rauschenberg much richer because of the consequent rise in his reputation and prices [30]. However, such an effect would normally only be a one-off, and in any event would apply only where an artist has an existing inventory of comparable works still in their ownership, or is able to produce new works which they can sell at the newly-established price point.
Of course, artists can also act themselves to secure their future. Various private, voluntary financial schemes, typically involving profit sharing, have been devised and are operating [31]. However, these schemes usually have very limited memberships and are directed at relatively sophisticated and successful artists, with reasonable bargaining power [32].
“There’ll be a mountain of paperwork”
The introduction of a resale royalty scheme undoubtedly involves dealers and auction houses in additional set-up and administrative costs. These include IT, accounting and clerical expenses, and professional costs of determining royalty liabilities in doubtful cases. While estimates of these costs vary [33] – and may well have been minimised or inflated by interested parties in some cases for the sake of dramatic effect [34] – it is possible that for some lower end transactions, the additional administrative costs may rival or exceed the actual royalty received by the artist from the collection agency, particularly after the agency’s commission is deducted [35]. Overall however, Graddy, commenting on the early UK experience, concluded that although some difficulties have arisen, the administrative burden “does not seem to have been excessive for most businesses”[36].
This nevertheless underlines the importance of ensuring that procedures for payment of royalties to the collection agency be as simple as possible, and be administered in an efficient, flexible and commonsense way. In the Australian scheme, some moves have been made in this direction – for example, it is up to artists themselves to register under the scheme; agency collection fees are a relatively low 5%; and dealers have been belatedly exempted from the obligation to report sales that fall under the $1,000 threshold, which amounts to a substantial proportion of otherwise qualifying sales [37].
“It's going to harm the domestic market”
It is often argued that a royalty effectively increases the price of a work and therefore deters purchasers from purchasing artworks in general. Earlier in this article we questioned whether this necessarily applies at the lower end of the market, given that royalty amounts will be so small. Even at the higher end, it is not clear why the imposition of a 5% royalty will have a significant effect when a 20% buyers premium – not to mention VAT/GST – evidently has not. Sotheby’s auction house (to take one example) has been steadily increasing the rate of buyer’s premium since its introduction in the 1970s, including quite recent increases, so it would require a level of chutzpah for it to be argued that a 5% royalty will prove to be a deal breaker.
Another variant of this argument is the concern that the existence of royalty schemes encourages sellers to “forum shop” by diverting sales to overseas non-royalty markets [38], to the detriment of the domestic market. In general, however, the evidence for this is rather patchy. Graddy, for example, cites a 2001 overseas case where it was said that the auction of Frenchman René Gaffe’s £50 million collection of Impressionist and contemporary artworks was transferred to New York at the request of the sale’s beneficiary in order to avoid droit de suite charges in Paris [39]. However, on closer examination, it appears that although the droit de suite may have been a contributing factor in this decision, it was not the main one [40].
According to Klement, evidence from Germany suggests that, since the introduction of droit de suite in 1961, the market has remained strong there as the amount of royalties has risen steadily [41]. It is also interesting that dire predictions about the effects of the introduction of the royalty in the UK – including claims that it would “tear the heart out” of the market” [42] – have not yet been fulfilled. In summarising the UK experience, Graddy concluded that the post-royalty UK art market had actually grown as fast, if not faster, than the art market in non-royalty countries. There was also no evidence that prices had fallen – in fact, they had appreciated faster than in non-royalty markets. Nor was there any evidence of diversion of business away from the UK [43]. Of course, these results in themselves are not conclusive, as other factors were also at work, including the boom in contemporary art, and the strength of the English pound. However, it at least suggests that some of the more emphatic doomsayers may need to take a more measured approach to this particular issue.
In any event, any such impact is likely to be limited in Australia. Most popular Australian artists are likely to receive better prices for their work on the Australian market [44]. Furthermore, selling overseas involves significant additional costs of shipping and insurance, which would often counteract any advantage from avoiding royalty on the mid- to low-range prices that Australian works would typically bring – especially in view of Australia’s considerable distance from other major art markets. Depending on the destination, going overseas may also involve higher buyers’ premium being payable. For example, the perceived advantage of not having to pay the 5% resale royalty by selling at Sotheby’s in New York would simply be offset by the fact that the buyers premium there, at 25%, is 5% more than at Sotheby’s in Australia [45].
“It hasn't worked before, so why should it work now?"
Although droit de suite exists in many countries [46], the practical capacity of royalty schemes to effectively deliver benefits has also been questioned. Lewis cites a study by Pierredon-Fawcett which found that only five (Belgium, France, Germany, Hungary and Spain) of the 29 countries in which the right existed at the time of her study in 1991 even applied it in practice [47].
Apart from issues of genuine administrative and political incompetence, or lack of commitment, there appear to be two factors that play a major role in the failure of many schemes. The first indicator of failure is where there is no compulsory collection administration [48]. The second is where the scheme is based on profit margins (as in Italy and Brazil), rather than being based on sale prices. For various reasons, reliance on profits, though appearing to be more logical, substantially increases complexity [49]. The Australian scheme avoids both of these traps, as does the UK scheme which, while not a unanimous success, appears overall at least to be functional [50].
“It infringes our basic traditional rights”
It is a standard feature of resale royalty schemes that the artist’s right to royalties cannot be alienated. This means that artist cannot transfer or otherwise deal with their royalty rights. The purpose of this is “to prevent artists being exploited and pressured into waiving or otherwise dealing detrimentally” with their rights [51]. However, a number of objections have been made to this concept. First, it is argued that its rationale reflects a clichéd view that dealers are out to exploit artists at every opportunity. Second, it is argued – rather parochially, it must be said – that it is contrary to traditional concepts of British law to have a property right that cannot be exploited by sale [52]. In the UK, David Hockney and others have also claimed that the restriction “violates artists’ human rights”[53]. This particular argument has elements of circularity, as it seems to say that an assumed human right to waive one’s rights must itself be non-waivable. In any event, this argument seems to have limited relevance in Australia, as artists here can instruct the collecting agency not to enforce the right in relation to any particular sale [54].
One of the main arguments raised against royalty schemes is that they actually tend to reduce the amount that artists may expect to receive from the initial sale of their work. The reason for this is that the existence of the royalty enables prospective purchasers to negotiate prices downwards on the basis that, “I will pay you less now because I’m effectively going to have to pay you some more when I resell the work”. This type of argument is said to reflect “economic theory and common sense”[7]. If it is correct, it would particularly affect artists in the early stages of their career, where every dollar is more likely to matter. It would also particularly affect the very large proportion of artists whose work does not resell in the secondary market [8], and whose reward is therefore restricted to that flowing from the initial sale, if any. It may also reduce the likelihood that the work will sell at all, as the more hurdles one places on the original transaction, the less likely the work is to be sold [9].
While this argument has some force, it may be that it considerably overstates the position. The first objection to it is that economic theory and commonsense may not necessarily the key determinants of behaviour in the art market [10]. The second objection is that the buyer from the artist will not really bear the full economic burden of the royalty as, in practice, they may pass it on to the person to whom they subsequently resell [11]. This means that to determine their “loss”, which they will supposedly reflect in the reduced price they pay the artist, they will have to estimate how much, if at all, the price of the work on its resale at some unspecified time in the future will be depressed by the fact that royalty will apply. The complexity of this analysis suggests just how unrealistic it may be. The third objection is that in many cases the argument may simply overstate the amount of customer resistance. Is it really “commonsense”, for example, to say that a buyer who is perfectly happy to pay $1,000 for a work will simply drop out of the market for it if the price were instead to be $1,050? [12].
The argument may have more force in situations where the purchase from the artist is followed almost immediately by a commercial resale, and where the effect (if any) of the future royalty liability may more readily be identified. In Australia, this may occur, for example, in some Indigenous art centres where the turnaround time between up-front payment and later resale may be only a few weeks. However, in most cases, this would be more than countered by the fact that the artist receives a royalty on the resale much quicker than would otherwise have been the case. To the extent that this is a genuine problem – and this is not at all clear-cut – consideration could be given to allowing a limited exemption from the royalty in cases where the first commercial resale occurs within a set time after the initial purchase from the artist [13].
“It will be like Robin hood in reverse"
It is also argued that rewards from royalty schemes are disproportionately skewed in favour of a tiny minority of very successful artists (especially “dead white males”), at the expense of the struggling artists whom, it is stated, the scheme is supposed to benefit [14].
For example, as is often pointed out, in France only seven artists (and their estates) receive 70% of the royalties that have been collected, with Matisse and Picasso’s descendants having massively disproportionate shares [15]. In the UK, in the initial stages of the scheme which started in 2006, the results have not been so extreme. However, there is still significant skewing, with some 80% of royalties initially going to the top 100 artists. In addition, the majority of payments were quite small, with the current median payment reported to be about £360 (equivalent to about $A530) [16]. The prominent artist David Hockney, who spearheaded a group of artists opposing the scheme, described this aspect as a “shameful inequality”[17].
This bias, when combined with the previous argument that the scheme will weaken the primary market for the initial sale of artist’s work, has led one commentator to argue that a royalty scheme operates like “Robin Hood in reverse” – harming struggling artists but benefiting the successful ones [18]. Why, the argument goes, have we gone to so much trouble just to achieve such a result?
Of course, the fact that the scheme heavily favours successful artists should hardly come as a surprise, as it largely just reflects market forces. Are we similarly shocked at the fact that the author of a hugely popular book will derive far more copyright royalties than would a struggling author whose work has a print run of 250? Is this an effective argument against copyright? The point is that the royalty scheme is not primarily intended to be a welfare measure directed at delivering rewards to artists who are unsuccessful or who do not sell their work. On the contrary, it is primarily designed to help artists who are artistically successful – in the sense that their work has become successful – but who are unable to directly participate financially in that success.
In Australia, it might have been expected that the bias in favour of highly successful established artists would be greater than in the UK. For one thing, the Australian market is thinner. For another, the Australian scheme does not impose a cap on individual royalty payments [19] and, unlike the UK scheme until 31 December 2011, is not limited to living artists.
On the other hand, there are factors that may tend to reduce the bias in Australia. These include the fact that the threshold for royalties in Australia (A$1,000) is lower than in the UK (€1,000, which is about A$1,300). More importantly, a factor particularly significant to the Australian market is the emergence of many successful “new” Indigenous artists, resulting in a significant restructuring in the Australian art scene over recent years. The importance of that factor is borne out, to some extent, by the initial results of the scheme. Copyright Agency Ltd, the official collecting agency, reports that over 60% of the recipients of royalties during the first three years of the scheme were Indigenous, and of the total amount of royalties (about $1.9m) paid during that period, over 50% was paid to Indigenous artists [20]. Interestingly, it has also been reported that the first to receive a royalty under the scheme was Gabriella Possum Nungurrayi [21]. This is significant for two reasons. Firstly, because she is was as far from a “dead white male” as it is possible to be; and secondly, because she was the daughter of Clifford Possum who, as we saw earlier, is often cited as a casualty of the pre-royalty position.
The Agency’s figures also confirm the truism, however, that the scheme cannot be a “get rich quick” scheme for the broad population of artists – not that anyone could realistically expect it to be. In the first three years, although an encouraging 700+ artists have benefited from the scheme (from 7,100 resales), most only received amounts ranging from $A50 to $A500 [22].
“Why should estate beneficiaries benefit for so long?"
One particular aspect of the “dead white male” argument arises from the fact that it is a standard feature of most royalty schemes that the right to the royalty continues after the artist’s death, commonly for a period similar to that allowed under copyright law. So, for example, in Australia, royalties will continue to be paid for 70 years after an artist’s death [23].
It may be questioned whether this is appropriate. The primary reason for the royalty is to ensure that the artist shares in the increased appreciation of her or his works, and to thereby provide encouragement to the artist to continue working. Of course, it is understandable that this should extend also to the artist’s surviving family or community, whose personal and financial welfare may be intimately tied to that of the artist. This, it will be remembered was the situation that originally created the idea for a droit de suite, and has particular importance given that a large part of the appreciation in the price of an artist’s work may not occur until after she or he dies.
However, having a 70 year entitlement period means that a number of generations, often with increasingly tenuous connections with the artist, will continue to benefit for many years before the royalty stops. For example, the works of an artist who died as far back as 1945 (and who may have been born in 1860) will still be eligible for royalty under the Australian scheme until 2015. This is the reason why royalties paid to estates will almost inevitably comprise a significant proportion of the total royalties paid. In the UK, for example, Graddy estimates that expanding the scheme there to include deceased estates, which commenced on 1 January 2012, would increase the total royalties by “about fourfold” [24].
The early experience in Australia has been that by far the greater percentage of royalties has been received by living artists [25]. This may come as a surprise to some critics of the scheme. A one-off factor which may possibly affect this is that the widow of one of Australian’s most prominent painters, the late Sidney Nolan, evidently cannot claim royalties as she lives in Britain and has previously relinquished her Australian citizenship [26]. Another more systemic factor is that this percentage may be expected to rise over time as more artists die, and the proportion of qualifying deceased artists therefore rises.
If longer experience with the Australian scheme demonstrates that some limits on the entitlements of deceased estates begin to seem appropriate, various possibilities could be considered. One approach might be to impose a cap on royalty payments made to estates. This would have a dramatic effect on high value sales. In the UK, for example, where a general €12,500 cap applies [27], the royalty on a €2 million sale is fixed at €12,500, whereas in Australia, with no cap, the corresponding royalty would be a much higher $130,000 (equivalent to about €100,000).
A different approach could be to reduce the entitlement period, for example to 25 years. This would allow a reasonable time for post-death appreciation while broadly limiting the direct beneficiaries to the generation that includes the children (if any) of the artist. This would reduce the total amount collected under the scheme, but it may ensure that it was more equitably distributed [28]. It also appears that this reduced period for deceased estate entitlements would not jeopardise Australia’s eligibility for reciprocal treatment with other participating countries under the Berne Convention [29].
“Artists already benefit from resales, or could if they wanted to”
In assessing the possible benefits to artists from the royalty scheme, it is relevant to recognise that, even without the royalty, artists may already participate indirectly when one of their works is resold at a substantial profit. The reason for this is because such a sale has a flow-on effect to the value of their other work. Both sides of this issue can be illustrated by the 1973 sale of Robert Rauschenberg’s Thaw for $85,000 by a seller who had acquired the work from the artist 15 years earlier for only $960. Supporters of a royalty scheme would no doubt identify with Rauschenberg’s famous complaint to the seller, “I’ve been working my ass off for years for you to make all this profit”. On the other hand, opponents of a royalty could equally point to the fact that the resale actually made Rauschenberg much richer because of the consequent rise in his reputation and prices [30]. However, such an effect would normally only be a one-off, and in any event would apply only where an artist has an existing inventory of comparable works still in their ownership, or is able to produce new works which they can sell at the newly-established price point.
Of course, artists can also act themselves to secure their future. Various private, voluntary financial schemes, typically involving profit sharing, have been devised and are operating [31]. However, these schemes usually have very limited memberships and are directed at relatively sophisticated and successful artists, with reasonable bargaining power [32].
“There’ll be a mountain of paperwork”
The introduction of a resale royalty scheme undoubtedly involves dealers and auction houses in additional set-up and administrative costs. These include IT, accounting and clerical expenses, and professional costs of determining royalty liabilities in doubtful cases. While estimates of these costs vary [33] – and may well have been minimised or inflated by interested parties in some cases for the sake of dramatic effect [34] – it is possible that for some lower end transactions, the additional administrative costs may rival or exceed the actual royalty received by the artist from the collection agency, particularly after the agency’s commission is deducted [35]. Overall however, Graddy, commenting on the early UK experience, concluded that although some difficulties have arisen, the administrative burden “does not seem to have been excessive for most businesses”[36].
This nevertheless underlines the importance of ensuring that procedures for payment of royalties to the collection agency be as simple as possible, and be administered in an efficient, flexible and commonsense way. In the Australian scheme, some moves have been made in this direction – for example, it is up to artists themselves to register under the scheme; agency collection fees are a relatively low 5%; and dealers have been belatedly exempted from the obligation to report sales that fall under the $1,000 threshold, which amounts to a substantial proportion of otherwise qualifying sales [37].
“It's going to harm the domestic market”
It is often argued that a royalty effectively increases the price of a work and therefore deters purchasers from purchasing artworks in general. Earlier in this article we questioned whether this necessarily applies at the lower end of the market, given that royalty amounts will be so small. Even at the higher end, it is not clear why the imposition of a 5% royalty will have a significant effect when a 20% buyers premium – not to mention VAT/GST – evidently has not. Sotheby’s auction house (to take one example) has been steadily increasing the rate of buyer’s premium since its introduction in the 1970s, including quite recent increases, so it would require a level of chutzpah for it to be argued that a 5% royalty will prove to be a deal breaker.
Another variant of this argument is the concern that the existence of royalty schemes encourages sellers to “forum shop” by diverting sales to overseas non-royalty markets [38], to the detriment of the domestic market. In general, however, the evidence for this is rather patchy. Graddy, for example, cites a 2001 overseas case where it was said that the auction of Frenchman René Gaffe’s £50 million collection of Impressionist and contemporary artworks was transferred to New York at the request of the sale’s beneficiary in order to avoid droit de suite charges in Paris [39]. However, on closer examination, it appears that although the droit de suite may have been a contributing factor in this decision, it was not the main one [40].
According to Klement, evidence from Germany suggests that, since the introduction of droit de suite in 1961, the market has remained strong there as the amount of royalties has risen steadily [41]. It is also interesting that dire predictions about the effects of the introduction of the royalty in the UK – including claims that it would “tear the heart out” of the market” [42] – have not yet been fulfilled. In summarising the UK experience, Graddy concluded that the post-royalty UK art market had actually grown as fast, if not faster, than the art market in non-royalty countries. There was also no evidence that prices had fallen – in fact, they had appreciated faster than in non-royalty markets. Nor was there any evidence of diversion of business away from the UK [43]. Of course, these results in themselves are not conclusive, as other factors were also at work, including the boom in contemporary art, and the strength of the English pound. However, it at least suggests that some of the more emphatic doomsayers may need to take a more measured approach to this particular issue.
In any event, any such impact is likely to be limited in Australia. Most popular Australian artists are likely to receive better prices for their work on the Australian market [44]. Furthermore, selling overseas involves significant additional costs of shipping and insurance, which would often counteract any advantage from avoiding royalty on the mid- to low-range prices that Australian works would typically bring – especially in view of Australia’s considerable distance from other major art markets. Depending on the destination, going overseas may also involve higher buyers’ premium being payable. For example, the perceived advantage of not having to pay the 5% resale royalty by selling at Sotheby’s in New York would simply be offset by the fact that the buyers premium there, at 25%, is 5% more than at Sotheby’s in Australia [45].
“It hasn't worked before, so why should it work now?"
Although droit de suite exists in many countries [46], the practical capacity of royalty schemes to effectively deliver benefits has also been questioned. Lewis cites a study by Pierredon-Fawcett which found that only five (Belgium, France, Germany, Hungary and Spain) of the 29 countries in which the right existed at the time of her study in 1991 even applied it in practice [47].
Apart from issues of genuine administrative and political incompetence, or lack of commitment, there appear to be two factors that play a major role in the failure of many schemes. The first indicator of failure is where there is no compulsory collection administration [48]. The second is where the scheme is based on profit margins (as in Italy and Brazil), rather than being based on sale prices. For various reasons, reliance on profits, though appearing to be more logical, substantially increases complexity [49]. The Australian scheme avoids both of these traps, as does the UK scheme which, while not a unanimous success, appears overall at least to be functional [50].
“It infringes our basic traditional rights”
It is a standard feature of resale royalty schemes that the artist’s right to royalties cannot be alienated. This means that artist cannot transfer or otherwise deal with their royalty rights. The purpose of this is “to prevent artists being exploited and pressured into waiving or otherwise dealing detrimentally” with their rights [51]. However, a number of objections have been made to this concept. First, it is argued that its rationale reflects a clichéd view that dealers are out to exploit artists at every opportunity. Second, it is argued – rather parochially, it must be said – that it is contrary to traditional concepts of British law to have a property right that cannot be exploited by sale [52]. In the UK, David Hockney and others have also claimed that the restriction “violates artists’ human rights”[53]. This particular argument has elements of circularity, as it seems to say that an assumed human right to waive one’s rights must itself be non-waivable. In any event, this argument seems to have limited relevance in Australia, as artists here can instruct the collecting agency not to enforce the right in relation to any particular sale [54].
Other issues with the Australian scheme
“Existing works” exemption for first resale after commencement
For artworks already in existence at the time the Australian scheme commenced (9 June 2010), the royalty applies only to the second and subsequent resales after that date [55]. The government has sought to justify this rather unusual provision [56] on two grounds. The first is that it is only fair that people who bought a work of art before the scheme commenced should not have the royalty imposed on the work when they resell. The second ground is that it allows businesses in the art market time to adjust to the introduction of the scheme. However, it appears that these justifications are really making a virtue out of perceived necessity, as the underlying reason was the government’s concern that applying the royalty to the first resale would be legally unconstitutional [57].
Whatever its rationale, the likely effect of this exemption is that the royalty will only apply to a small minority of sales for some years to come. The reason for this is that the average time between sales of work on the secondary market may be considerably longer than that originally envisaged by the government [58]. The copyright collection agency Viscopy have claimed, on the basis of auction data from 1998-2007, that only 6% of works sold at auction in 1998 were resold by 2008, and suggest that, even on a conservative estimate, the average time between sales may be more than 20 years [59]. If this is correct, most artists will be waiting many years before hoping to receive royalties from new works in any event, and up to double that for existing works. According to Viscopy’s estimates, this would reduce total auction royalties paid under the scheme over a ten-year period by a staggering 87% (from about $35 million to $4.6 million), and the number of participating artists by about two-thirds. Even if these figures are even vaguely representative [60], they indicate that artists’ benefits from the scheme will be dramatically reduced.
The exemption may also lead to practical anomalies. As the exemption applies even if the first resale is not a commercial transaction, it may prove difficult when a work is later resold to determine whether such an earlier sale has occurred. This will lead to uncertainty about the applicability of the royalty. This may particularly affect Indigenous artists, because of the apparent practice of some to give different paintings the same name [61].
Will the threshold exclude too many artists?
In Australia, the royalty applies only if the sale price is $1,000 or more [62]. The government says that this threshold balances the need to provide benefits to a wide range of artists against the administrative costs of making multiple very small payments. The Coalition for an Australian Resale Royalty (CARR) has argued that the threshold should be lowered to $500, with a view to increasing the number of artists benefiting. However, on its own estimates, this would only have produced an increase of about 20% in participating artists, and only an increase of 3% in total royalties collected [63]. In relation to Indigenous artists, the effect is even smaller, with an increase in participating artists of only about 10%. It is therefore doubtful that a strong case can be made for lowering the threshold, in view of the administrative costs and the very small amounts involved. Indeed, there is an argument that the threshold should actually be higher, in the interests of reducing administrative costs. In the UK, as we have seen, the threshold is €1,000, which translates to about $A1, 250, and there is some pressure to significantly raise this. This is possibly an area where the effect in practice needs to be monitored in any subsequent review of the scheme.
Is it a misallocation of resources?
Some concerns have been expressed that the royalty scheme is a misallocation of resources. For example, it is said that the scheme cannot be viewed as a substitute for integrated policies addressing the issues facing the arts industry or the Indigenous community [64]. That is obviously true. However, the fact that the scheme’s real aims are quite modest is not necessarily a reason for not implementing it at all [65].
It is also argued that the resources put into the scheme would have been better directed at more specific projects directed at areas of more obvious need. So, for example, it has also been suggested that the $1.5 million which the government originally allocated to the royalty scheme would have been better spent by paying “150 young artists $10,000 each for artworks for the Parliament House collection in Canberra”[66]. There is also a related concern that the government will use the scheme as an excuse to cut funding. In view of the relatively low cost of the scheme to government, that would indeed be a retrograde and unjustified step [67]. Only time and subsequent government (in)actions will tell on these issues.
Indigenous succession and communication issues
Under the scheme, royalties for a deceased artist who left a will are distributed in accordance with that will [68]. Permitted beneficiaries may include “community bodies”[69], which would presumably extend to Indigenous community groups. However, problems may arise if the artist does not leave a will – a common occurrence in some Aboriginal communities. In this situation, the royalty will be distributed in accordance with the normal rules about intestacy. Those rules may not accord well with Aboriginal customary law, with Aboriginal concepts about who “owns” the cultural values behind the work, or with the possible wishes of the artist. According to the Arts Law Council, many indigenous artists would wish for their estate to be shared much more widely throughout their extended family or community than would normally be allowed under intestacy laws [70].
One suggested solution for this is for the intestacy laws to be changed so that they recognised concepts of communal ownership. This, of course, raises issues much wider than just resale royalty rights, and could prove to be somewhat of a legal quagmire, particularly as intestacy laws differ from State to State. Whether or not that may be desirable in the longer term, a rather more immediate approach would be to take practical steps to encourage Aboriginal artists to make wills, so that their wishes can properly be respected. Perhaps government funding could be channelled into will-making programs along the lines of the successful program being carried out by the Arts Law Council [71].
Additional practical difficulties have also been recognised in communicating with some Indigenous artists who may not be aware of the scheme, or who live in remote areas, move from one settlement to another, have no telephone, no bank account into which a royalty cheque could be cashed, or who give no or only generic titles to their works. It is understood that the collecting agency is taking active steps to address these issues [72].
For artworks already in existence at the time the Australian scheme commenced (9 June 2010), the royalty applies only to the second and subsequent resales after that date [55]. The government has sought to justify this rather unusual provision [56] on two grounds. The first is that it is only fair that people who bought a work of art before the scheme commenced should not have the royalty imposed on the work when they resell. The second ground is that it allows businesses in the art market time to adjust to the introduction of the scheme. However, it appears that these justifications are really making a virtue out of perceived necessity, as the underlying reason was the government’s concern that applying the royalty to the first resale would be legally unconstitutional [57].
Whatever its rationale, the likely effect of this exemption is that the royalty will only apply to a small minority of sales for some years to come. The reason for this is that the average time between sales of work on the secondary market may be considerably longer than that originally envisaged by the government [58]. The copyright collection agency Viscopy have claimed, on the basis of auction data from 1998-2007, that only 6% of works sold at auction in 1998 were resold by 2008, and suggest that, even on a conservative estimate, the average time between sales may be more than 20 years [59]. If this is correct, most artists will be waiting many years before hoping to receive royalties from new works in any event, and up to double that for existing works. According to Viscopy’s estimates, this would reduce total auction royalties paid under the scheme over a ten-year period by a staggering 87% (from about $35 million to $4.6 million), and the number of participating artists by about two-thirds. Even if these figures are even vaguely representative [60], they indicate that artists’ benefits from the scheme will be dramatically reduced.
The exemption may also lead to practical anomalies. As the exemption applies even if the first resale is not a commercial transaction, it may prove difficult when a work is later resold to determine whether such an earlier sale has occurred. This will lead to uncertainty about the applicability of the royalty. This may particularly affect Indigenous artists, because of the apparent practice of some to give different paintings the same name [61].
Will the threshold exclude too many artists?
In Australia, the royalty applies only if the sale price is $1,000 or more [62]. The government says that this threshold balances the need to provide benefits to a wide range of artists against the administrative costs of making multiple very small payments. The Coalition for an Australian Resale Royalty (CARR) has argued that the threshold should be lowered to $500, with a view to increasing the number of artists benefiting. However, on its own estimates, this would only have produced an increase of about 20% in participating artists, and only an increase of 3% in total royalties collected [63]. In relation to Indigenous artists, the effect is even smaller, with an increase in participating artists of only about 10%. It is therefore doubtful that a strong case can be made for lowering the threshold, in view of the administrative costs and the very small amounts involved. Indeed, there is an argument that the threshold should actually be higher, in the interests of reducing administrative costs. In the UK, as we have seen, the threshold is €1,000, which translates to about $A1, 250, and there is some pressure to significantly raise this. This is possibly an area where the effect in practice needs to be monitored in any subsequent review of the scheme.
Is it a misallocation of resources?
Some concerns have been expressed that the royalty scheme is a misallocation of resources. For example, it is said that the scheme cannot be viewed as a substitute for integrated policies addressing the issues facing the arts industry or the Indigenous community [64]. That is obviously true. However, the fact that the scheme’s real aims are quite modest is not necessarily a reason for not implementing it at all [65].
It is also argued that the resources put into the scheme would have been better directed at more specific projects directed at areas of more obvious need. So, for example, it has also been suggested that the $1.5 million which the government originally allocated to the royalty scheme would have been better spent by paying “150 young artists $10,000 each for artworks for the Parliament House collection in Canberra”[66]. There is also a related concern that the government will use the scheme as an excuse to cut funding. In view of the relatively low cost of the scheme to government, that would indeed be a retrograde and unjustified step [67]. Only time and subsequent government (in)actions will tell on these issues.
Indigenous succession and communication issues
Under the scheme, royalties for a deceased artist who left a will are distributed in accordance with that will [68]. Permitted beneficiaries may include “community bodies”[69], which would presumably extend to Indigenous community groups. However, problems may arise if the artist does not leave a will – a common occurrence in some Aboriginal communities. In this situation, the royalty will be distributed in accordance with the normal rules about intestacy. Those rules may not accord well with Aboriginal customary law, with Aboriginal concepts about who “owns” the cultural values behind the work, or with the possible wishes of the artist. According to the Arts Law Council, many indigenous artists would wish for their estate to be shared much more widely throughout their extended family or community than would normally be allowed under intestacy laws [70].
One suggested solution for this is for the intestacy laws to be changed so that they recognised concepts of communal ownership. This, of course, raises issues much wider than just resale royalty rights, and could prove to be somewhat of a legal quagmire, particularly as intestacy laws differ from State to State. Whether or not that may be desirable in the longer term, a rather more immediate approach would be to take practical steps to encourage Aboriginal artists to make wills, so that their wishes can properly be respected. Perhaps government funding could be channelled into will-making programs along the lines of the successful program being carried out by the Arts Law Council [71].
Additional practical difficulties have also been recognised in communicating with some Indigenous artists who may not be aware of the scheme, or who live in remote areas, move from one settlement to another, have no telephone, no bank account into which a royalty cheque could be cashed, or who give no or only generic titles to their works. It is understood that the collecting agency is taking active steps to address these issues [72].
Conclusions
Turning first to the perceived drawbacks, the concerns are that the scheme may reduce prices received by artists, make it harder to sell works in the primary market, create buyer resistance, weaken demand in the secondary market, and encourage diversion of sales to other markets. However, these arguments seem to depend largely on an economic model of coldly rational buyers and sellers. Although appropriate to commodity markets, they may not be so appropriate in a market where a significant proportion of people purchase artworks because they really like them and want them. In addition, there is also not a substantial amount of evidence that, for the low rates at which royalty is calculated, these arguments will have a significant effect in practice.
However, it is undeniably true that there have been additional costs and inconvenience for dealers and auction houses, especially in the start-up phase of the scheme. They will also stand to lose income if it happens that the scheme in fact causes reductions in sale volumes or prices. Even here, though, it may be that the extent of these hardships has been exaggerated, especially in view of the fact that the UK market has survived without the major traumas originally predicted. It is also true that the timing of the introduction of the scheme in the midst of a global financial downturn was particularly unfortunate.
In relation to artists’ rewards, it is likely that the Australian scheme, like other schemes, will tend to favour those artists who have established successful reputations in the past. In Australia, this effect will be accentuated by the long period of entitlement for deceased estates, though it will be mitigated to a significant extent by the emergence of Indigenous artists. At the other end of the scale, the rewards available to the majority of artists who will qualify will probably continue to be relatively small – measuring in the hundreds of dollars for many of them. In addition, the effect of the existing works exemption will be to defer a large proportion of those payments; in many cases, there will be a considerable period before current artists can hope to receive money under the scheme. Not only will this reduce and defer the actual reward for these artists, but it may also reduce the element of encouragement of “creative endeavour” that the legislation hopes to achieve [73]. Artists who fail to progress to the secondary market, (or who never sell in the first place) will, naturally, not directly benefit at all.
In the future, if Australia enters into reciprocal agreements with other royalty countries [73A], artists may benefit to some extent from the fact that those other countries will pay royalties on Australian work sold there. However, this is likely to be limited, in view of the smallness of the overseas market for non-indigenous Australian works.
Within these significant limits, the initial results of the Australian scheme give grounds for some considerable optimism, particularly in view of the recent simplifications to dealers’ record-keeping obligations [73B]. While the scheme is obviously no El Dorado for the vast majority of artists, a modest (sometimes unexpected) cheque would be welcome to most of them. In accordance with the original hopes for the scheme, Indigenous artists are likely to continue to fare relatively well, given their high profile in the market [74]. Some Indigenous artists at the lower end of the market may benefit to a limited extent from the increased scrutiny that the obligations to disclose sales may place on any exploitative practices that may have emerged [77]. It is also possible that the royalty will have particular symbolic value for these artists because of the special role of their art in the expression and transmission of Indigenous culture [76].
© Philip McCouat 2012, 2013
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However, it is undeniably true that there have been additional costs and inconvenience for dealers and auction houses, especially in the start-up phase of the scheme. They will also stand to lose income if it happens that the scheme in fact causes reductions in sale volumes or prices. Even here, though, it may be that the extent of these hardships has been exaggerated, especially in view of the fact that the UK market has survived without the major traumas originally predicted. It is also true that the timing of the introduction of the scheme in the midst of a global financial downturn was particularly unfortunate.
In relation to artists’ rewards, it is likely that the Australian scheme, like other schemes, will tend to favour those artists who have established successful reputations in the past. In Australia, this effect will be accentuated by the long period of entitlement for deceased estates, though it will be mitigated to a significant extent by the emergence of Indigenous artists. At the other end of the scale, the rewards available to the majority of artists who will qualify will probably continue to be relatively small – measuring in the hundreds of dollars for many of them. In addition, the effect of the existing works exemption will be to defer a large proportion of those payments; in many cases, there will be a considerable period before current artists can hope to receive money under the scheme. Not only will this reduce and defer the actual reward for these artists, but it may also reduce the element of encouragement of “creative endeavour” that the legislation hopes to achieve [73]. Artists who fail to progress to the secondary market, (or who never sell in the first place) will, naturally, not directly benefit at all.
In the future, if Australia enters into reciprocal agreements with other royalty countries [73A], artists may benefit to some extent from the fact that those other countries will pay royalties on Australian work sold there. However, this is likely to be limited, in view of the smallness of the overseas market for non-indigenous Australian works.
Within these significant limits, the initial results of the Australian scheme give grounds for some considerable optimism, particularly in view of the recent simplifications to dealers’ record-keeping obligations [73B]. While the scheme is obviously no El Dorado for the vast majority of artists, a modest (sometimes unexpected) cheque would be welcome to most of them. In accordance with the original hopes for the scheme, Indigenous artists are likely to continue to fare relatively well, given their high profile in the market [74]. Some Indigenous artists at the lower end of the market may benefit to a limited extent from the increased scrutiny that the obligations to disclose sales may place on any exploitative practices that may have emerged [77]. It is also possible that the royalty will have particular symbolic value for these artists because of the special role of their art in the expression and transmission of Indigenous culture [76].
© Philip McCouat 2012, 2013
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Endnotes
1. This concern had a potent impact, though there were other factors that also played a role in the campaign, such as the desire to assist widows whose artist-husbands had been killed in World War I, and the apparent success of a scheme devised by a private syndicate of art investors, who paid artists a share of the sale proceeds of their paintings: see Lewis, P, “The resale royalty and Australian visual artists: painting the full picture” (2003) 8 Media and Arts Law Review 306, at 307.
2. Of course, an artist may also derive some copyright royalties from reproduction of images of their works in auction catalogues, print editions, and other publications. These however are very limited – they account for as little as 2% of visual artists’ creative income: see Throsby, D and Hollister, V, Don’t give up your day job: An economic study of professional artists in Australia, Australia Council for the Arts, 2003.
3. This particular rationale tends to overlook the role of other people (such as dealers, auction houses, curators, critics and collectors), and other factors (such as luck and fashion), that may contribute to building an artist’s reputation: see Lewis, op cit (note 1) at 314; Klement, U, “Resale royalties for visual artists: an analysis of international developments and the implications for New Zealand”, New Zealand Intellectual Property Journal, Volume 4, Part 9, September 2006, at 219.
4. The relevant legislation is the Resale Royalty Right for Visual Artists Act 2009 (“the Act”). The artworks covered are original works of graphic or plastic art, including pictures, collages, paintings, drawings, engravings, prints, lithographs, sculptures, tapestries, ceramics, glassware and photographs (Act, sec 7). The Act also specifically applies to forms of fine art textiles, installations, fine art jewellery, artist’s books, carvings, and multimedia artworks.
5. Second Reading Speech, delivered by Peter Garrett, Minister for the Environment, Heritage and the Arts, 27 November 2008. To date, no reciprocal arrangements with other countries have been finalised. However, it is understood that progress has been made with several countries, and it was hoped that agreements would eventually be in place with France, Germany, Sweden, Hungary and Italy.
6. Italicised side headings in quotation marks are distillations of attitudes, not necessarily actual quotations.
7. Sanders, A, “Artists’ resale royalties: Bonus or burden?”, Art and Australia, Vol 42 No 3, Autumn 2004, 450. See also Stanford, J, Submission to the Department of Communications, Information Technology and the Arts Discussion Paper on the Proposed Resale Royalty Arrangement, 2004.
8. Only a small percentage of artists are able to make the transition from the primary market (initial sale of work) to the secondary market (resale).
9. The existence of the royalty may also prompt dealers to shift from buying works outright to holding them on consignment – thus deferring payments to artists – or discourage small margin intra-dealing trading: see Graddy K, Horowitz N and Szymanski S. A study into the effect on the UK art market of the introduction of the artist’s resale right, IP Institute, January 2008 (report commissioned by the UK Intellectual Property Office).
10. Indeed, in some of its more fanciful manifestations, the art market more resembles the medieval market in saints’ relics.
11. In the Australian scheme, the primary legal obligation to pay the royalty lies on the seller (Act, sec 20). This liability is shared with a dealer or auction house that acts on the sale. However, the decision as to who actually bears the economic burden of the payment is a matter for negotiation between the parties. It is expected that, in practice, this burden may often fall on the buyer.
12. Myer concluded that the effect would be negligible: see Myer, R, Report of the Contemporary Visual Arts and Craft Inquiry, Commonwealth of Australia, Canberra, 2002 (“Myer Report”), at 163.
13. A period of 12 months was suggested in the Report of the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts on its Inquiry into the Resale Royalty Right for Visual Artists Bill 2008, February 2009. In the UK, no royalty is payable by a gallery or other art market professional on an original work where it is sold within three years of direct purchase from the creator; and where the later sale by the gallery etc. does not exceed €10,000 (2006 Regulation 12(4)). The intended effect of this exemption is to encourage buyers to invest in works by less well-known artists whose potential is uncertain, and to encourage dealers to buy works directly from the artist’s studio instead of taking them on commission.
14. This of course assumes that “struggling” artists actually deserve help in the first place. However, one line of argument, primarily advanced by economists, questions this basic assumption. It attacks what is sees as the romantic myth of the struggling artist, and suggests that a royalty resale scheme is not needed because artists are already doing as well as they can expect or deserve. On this basis, for example, it has been argued that artists actually earn the same as other workers with similar training and personal characteristics: Filer, R, “The ‘Starving Artist’ – Myth or Reality? Earnings of Artists in the United States”, Journal of Political Economy, vol.94, no.1, February 1986, 56, cited in Graddy, op cit (note 9) at 45. Similarly, it has been argued that Van Gogh – an archetypal example of an artist who died before his work could bring him financial reward – should, with proper planning, have been able to begin reaping financial dividends from the large body of important work he had produced at the time of his suicide: Landes, W M, and Levine, D B, “The Economic Analysis of Art Law,” in Ginsburgh, V A, and Throsby, D, eds, Handbook of the Economics of Art and Culture, Elsevier, Amsterdam, 2006, at 232, cited in Graddy, op cit (note 9) at 45. Whatever the merits of this rather judgmental approach, the facts in Australia appear to be that the incomes of contemporary visual arts and craft practitioners in Australia are lower than that of the general workforce, and of artists in other fields (Myer, op cit note 12).
15. Sanders, A, op cit (note 7), at 451.
16. Graddy, op cit (note 9) at 2. Davies, C, and Addley, E, “Art dealers claim droit de suite levy threatens London’s art trade”, Guardian, 22 December 2011.
17. Hockney’s criticism (on behalf of the group “Artists Against Droit de Suite”) has been inflated into the rather sweeping claim that “in the UK, the droit de suite scheme has been condemned by the people it is designed to benefit”: Lewis, op cit (note 1), at 313. As a general statement, this does not appear to be correct. Graddy found that a majority of UK artists were in favour of resale royalties, even though many admitted to lacking much knowledge about it and were not expecting huge rewards from it: Graddy, op cit (note 9), at 45.
18. Merryman, cited in the House Standing Committee Report, op cit (note 13).
19. Under the UK scheme, there is a sliding scale of royalties (starting at a maximum rate of 4%), with the maximum amount payable on any particular sale being capped at €12,500, which applies to works sold for more than €2million. Imposing a cap has a number of effects. It reduces the immediate rewards to higher-end artists, but also reduces the burden on buyers of higher priced works. It also has the incidental effect of (artificially) reducing the proportionate share of very successful artists in the royalty pool.
20. Copyright Agency Limited website www.resaleroyalty.org.au; see also Australian Government 2013 Review of the Resale Royalty Scheme Discussion Paper and Terms of Reference, June 2013. This high percentage may be inflated in the early stages because of the special Australian transitional rule that limits the scheme to the second sale (and subsequent resales) after the commencement of the scheme on 9 June 2010: see discussion later in this article. Many Indigenous art centres buy work from the artist and then resell it, which satisfies the second sale requirement relatively quickly, whereas many non-Indigenous artists tend to sell through galleries on consignment, thus deferring their entitlement to royalty: see Boland, Michaela, “Possum first to receive royalty from artwork resale scheme”, The Australian, 25 October 2010.
21. She received a royalty of $250 for the sale of Seven Sisters Dreaming: see Boland, op cit (note 20).
22. The highest individual royalty was $50,000: Copyright Agency Limited website www.resaleroyalty.org.au
23. Act, sec 32. This applies whether the artist dies before or after the commencement of the scheme.
24. Graddy, op cit (note 9), at 2. Similarly the UK collection agency Design and Artists Copyright Society (DACS) reportedly estimates that total annual royalties will gradually increase from £3m to £12m once deceased estates are included. The extension has, predictably, revived arguments about the scheme in the UK: see Davies and Addley, op cit (note 16).
25. Information from Copyright Agency Limited and Australian Government 2013 Review of the Resale Royalty Scheme Discussion Paper and Terms of Reference, June 2013. After three years experience of the scheme, the Agency was reporting that although some royalties have been paid to the families of deceased artists, over 90% of the recipients were living, and they were receiving over 70% of the royalties paid (www.resaleroyalty.org.au). This may be contrasted with the claim by one commentator that the scheme has "failed to help anyone but a few wealthy heirs of deceased Australian masters" (John McDonald. "Fair trade",Sydney Morning Herald, 11 August 11, 2012).
26. Boland, Michaela, “Sidney Nolan widow Mary pays the price of surrendering citizenship”, The Australian, 13 December 2011.Under the Australian scheme, unless a reciprocal arrangement applies, an individual can only claim if they are a citizen or permanent resident of Australia (Act sec 14).
27. See note 19.
28. The fact that 70 years is the period allowed for copyright protection is not really to the point. In Australia, resale royalties are governed by a statutory scheme that is quite separate from copyright legislation. Although both concepts are directed at broadly similar economic ends – enabling creators to continue to participate in the commercial exploitation of their work – the substantial differences between the two concepts mean that what applies for one has no necessary application to the other. The most obvious of these differences is that literary work is essentially marketed as a commodity, by exploitation of the copyright through reproduction. In contrast, visual art is usually unique, and reproduction is only a very minor aspect. Reproduction (and copyright) is of course appropriate where art is commoditised by the issue of prints.
29. See also House Standing Committee, op cit (note 13) at para 2.65. To date, Australia has not negotiated any reciprocal arrangements with any other countries.
30. Klement, op cit (note 3), at 219.
31. Graddy, op cit (note 9) at 52.
32. Examples include the Boyd Level “negotiated resale rights” (NRR) scheme, which involves discounts being negotiated in return for a share of profits made on the first resale; and the Artist Pension Trust (APT), which involves a selected group of artists giving works to the Trust, in return for an entitlement to a percentage of the proceeds of the eventual long term resale of the work, plus a cut of other members’ entitlements. A further alternative is the much more straightforward procedure of artists simply setting aside an inventory of various works with a view to future sale at a (hopefully) appreciated price – in effect, this is similar to a self managed pension fund: Caves, R, Creative Industries: Contracts Between Art and Commerce, Cambridge and London: Harvard University Press, 2000, at 282. A quite different type of scheme has attracted the support of the Australian Commercial Galleries Association. This is along the lines of the Pollock-Krasner Foundation . It involves a self regulated industry-based foundation bestowing grants on the dual criteria of “recognisable artistic merit and financial need”, whether professional, personal or both, with a particular emphasis on Indigenous artists. This would be financed by “gifts” made on resales, calculated as a percentage of profit: Gregory, B & Ors, A Response to the Proposed Resale Royalty Arrangement Discussion Paper, 19 August 2004.
33. Graddy, op cit (note 9) at 48.
34. For example, the UK collection agency DACS estimated a cost per transaction of 28 pence, whereas the British Art Market Federation estimated initial compliance costs per transaction at up to £40. Evidence from European collecting agencies shows that the costs represent from 10% - 25% of the royalty: Klement op cit (note 3).
35. It is also possible that this consideration may tempt some dealers to shift their business focus away from lower priced sales, to the detriment of struggling artists.
36. Graddy, op cit (note 9), at 2.
37. “Resale royalty scheme simplified”, Media Release by Minister for Regional Australia, Regional Development and Local Government Minister for the Arts, 14 December, 2011.
38. Or, alternatively, “go underground” by implementing the sale as a “private” sale.
39. Graddy, op cit (note 9), at 49.
40. Klement op cit (note 3), at 223.
41. Klement op cit (note 3), at 222.
42. Lewis, op cit (note 1) at 317. Lewis also observes that although roughly a third of the fine art sold in the world is French in origin, only 7% of all French art sales take place in France, and that Paris has declined as a national — let alone international — art market, to the benefit of non-royalty markets such as New York. However, it appears that a major factor in this was that until 2001, foreign auction houses were prohibited from selling in France. Since that law was repealed, auctions sales in Paris have risen notably: Klement, op cit (note 3), at 222.
43. Graddy op cit (note 9), at 2.
44. Though there is now a significant part of the market for Indigenous artworks in the United States.
45. See Sotheby’s website at <http://www.sothebys.com/help/faq/faq_duringauction.html>.
46. For a 2007 list of the various schemes, together with their main features, see Appendix 2 of A Resale Royalty Right for Visual Artists: Options for its possible application to New Zealand, Discussion Paper, Ministry for Culture and Heritage, Wellington, April 2007. New Zealand abandoned its proposal to implement a royalty scheme following a change of government. For details of recent attempts to introduce a resale royalty scheme on a national basis in the United States, see Kevin P Ray, "California cannot require resale royalty on out-of-State art sales, but the most important issues remain to be addressed on remand", The National Law Review,18 June 2015
47. Lewis, op cit (note 1), at 316. Interestingly, in October 2012, it was reported that Italian tax authorities "have finally turned their attention" to investigating a number of art-related tax offences, including violating the droit de suite laws: Ermanno Rivetti, "Italy cracks down on art tax avoidance" in The Art Newspaper, International Edition No 239, section 2, page 3.
48. Klement concluded that the existence of a compulsory collection administration was a common feature of those European countries where a royalty has been effectively implemented – France, Belgium, Denmark, Finland and Germany: Klement, op cit (note 3), at 217.
49. In most jurisdictions, the royalty is payable on the whole of the resale price, not the resale profit. This can lead to the result that a royalty is payable on a sale even though the vendor is making a loss. However, this may not be as illogical as it first appears. Copyright royalties for a literary work are normally based on gross revenue, irrespective of whether the publisher makes a commercial profit on the publication. In the same way, it is arguable that the right to resale royalty should not depend on the resale proving commercially profitable. Be this as it may, there are also practical reasons for this approach. If the royalty were to be based on profit, this would require there to be an investigation of the vendor’s personal financial situation to determine if a profit has actually been made and, if so, how much. This in turn would mean that the original cost would have to be identified, as well as any other costs incurred on the work by the vendor over its period of ownership. These could be extremely difficult to determine or verify, as any tax accountant dealing with the nightmare of clients’ capital gains tax calculations might attest. Furthermore, there would presumably have to be some allowance made for the effects of inflation over the period of ownership. These factors would make the calculation of the royalty a major exercise in virtually every case. Considered in this light, it is not surprising that in jurisdictions that base the royalties on profit, the royalty scheme has proved to be less than successful.
50. Graddy, op cit (note 9), at 2. The level of success is (naturally) disputed.
51. See the Explanatory Memorandum for clause 34 of the Resale Royalty Right for Visual Artists Bill 2008.
52. Sanders, op cit (note 7). This view may possibly have more relevance to situations where the royalty is incorporated into normal copyright legislation. That is not the case in Australia: see note 28.
53. Graddy, op cit (note 9).
54. Act, sec 23.
55. Act, sec 11.
56. In other countries where similar schemes have been introduced, the royalty has been payable on all resales at the date of commencement: House Standing Committee Report, op cit (note 13), para 2.45.
57. The existing works exemption was evidently not the original intention of the drafters, but was inserted in the legislation, on legal advice, based on the argument that the legislation would otherwise constitute an acquisition of property on unjust terms, contrary to s 51(xxxi) of the Australian Constitution. The House Standing Committee (op cit, note 13) recommended that this decision be reviewed in the light of recent High Court decisions, but this was rejected. It is not clear whether the government considered alternative proposals which suggested avoiding the perceived constitutional difficulty by: (1) transferring formal legal liability for payment of the royalty to the buyer; or (2) undertaking to provide compensation if any disadvantage to sellers was proven.
58. The government evidently relied on findings in a commissioned study from Access Economics. That study was, however, based on estimates of 2, 5 and 10 years average turnaround times for an artwork: House Standing Committee Report, op cit (note 13), para 2.27.
59. Viscopy Ltd, Implications of the Australian Government’s Proposed Royalty Scheme, November 2008.
60. Any projections based on retrospective analysis must necessarily involve a large degree of guesswork, particularly as the Australian market of today is considerably different from that of 20 years ago.
61. A final issue about the exemption is the fear that its unusual nature may mean that reciprocal arrangements under the Berne Convention for the Protection of Literary and Artistic Rights may not be recognised by other countries operating resale schemes. This could mean that Australian artists will not receive any resale income when their work is sold in these countries. However, it appears that this fear has been overstated: House Standing Committee, op cit (note 13) at para 2.65.
62. Act, sec 10. In Europe, the threshold ranges from €400 (Germany) to €3,000 (Italy).
63. See Viscopy, op cit (note 59).
64. For example, art consultant Adrian Newstead was quoted as saying, "A resale royalty is no substitute whatsoever for enlightened government policy in the area of indigenous health, education and community development": see http://www.smh.com.au/news/arts/artists-to-be-paid-for-every-sale-forever-more/2008/08/08/1218139079799.html
65. Quiggin, R, "The Resale Royalty: An Overview" [2006] Indigenous Law Bulletin 19.
66. The Northern Myth Blog: submission by “Painter” 25/11/08, accessed at www.crikey.com.au. The figure of $1.5 million is the amount allocated to the scheme by the government over the first three years.
67. An additional factor in determining the cost to government is the amount of any tax deductions that will presumably be claimed by business purchasers. Sanders argues that, because of these deductions, the scheme would be “a taxpayer-funded subsidy to the wealthiest and most successful Australian artists and their descendants”: Sanders, op cit (note 7). However, this overlooks the fact that that royalties will presumably be taxable, so no element of subsidy is likely to arise. Overall, as the cost to government is small in the general scheme of things, there would be no case at all for any compensatory cuts to be made to funding in other areas.
68. Act, sec 12 and 15.
69. Defined in the Act as bodies established by a community for the purpose of supporting or promoting the welfare or cultural values of the community (sec 3).
70. Submission of Arts Law Council of Australia to the Inquiry into the Resale Royalty Right for Visual Artists Bill 2008 by the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts.
71. Since the Arts Law Council’s specialised Indigenous service, Artists in Black, commenced in 2004, it has drafted over 300 wills for Indigenous artists: Submission of Arts Law Council of Australia, op cit (note 70).
72. Frew, W, “No easy job giving distant artists their just deserts”, Sydney Morning Herald, 20 April 2011, p16.
73. To the extent that financial rewards act as an inventive for artists, this effect becomes weaker if the reward is relatively small, if it is uncertain and if it is delayed: see Alderman, E C, “Resale Royalties in the United States for Fine Visual Artists: an Alien Concept" (1992) 40 J Copyright Society USA 165, 283, cited in Radde, S “‘Droit de suite: The artist’s right to a resale royalty and the implications for New Zealand”, New Zealand Intellectual Property Journal, Volume 2, Part 12, May 2001 at 355. These are all factors that are characteristics of the Australian scheme. One could present this in a more positive light by treating the benefits under the royalty scheme as similar to superannuation benefits payable at an advanced stage of the artist’s career. One might also argue that the existence of the “existing right” exemption will actually act as a spur for artists to create new work that will be eligible for royalty on the first resale.
73A. For progress, see end note [5].
73B. A full review of the scheme was announced by the Minister for the Arts on 5 June 2013; Australian Government 2013 Review of the Resale Royalty Scheme Discussion Paper and Terms of Reference, June 2013 http://arts.gov.au/visual-arts/resale-royalty-scheme
74. Indigenous people represent only 2.6% of the Australian population, but in 2007, 24% of all art sales by Australian artists were of Indigenous works.
75. As an incidental benefit, curators might find it easier to keep track of works more easily.
76. Quiggin, op cit (note 65). The fact that the royalty is received as a matter of legal entitlement, rather than as a discretionary handout, is also a matter that should not be dismissed lightly.
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2. Of course, an artist may also derive some copyright royalties from reproduction of images of their works in auction catalogues, print editions, and other publications. These however are very limited – they account for as little as 2% of visual artists’ creative income: see Throsby, D and Hollister, V, Don’t give up your day job: An economic study of professional artists in Australia, Australia Council for the Arts, 2003.
3. This particular rationale tends to overlook the role of other people (such as dealers, auction houses, curators, critics and collectors), and other factors (such as luck and fashion), that may contribute to building an artist’s reputation: see Lewis, op cit (note 1) at 314; Klement, U, “Resale royalties for visual artists: an analysis of international developments and the implications for New Zealand”, New Zealand Intellectual Property Journal, Volume 4, Part 9, September 2006, at 219.
4. The relevant legislation is the Resale Royalty Right for Visual Artists Act 2009 (“the Act”). The artworks covered are original works of graphic or plastic art, including pictures, collages, paintings, drawings, engravings, prints, lithographs, sculptures, tapestries, ceramics, glassware and photographs (Act, sec 7). The Act also specifically applies to forms of fine art textiles, installations, fine art jewellery, artist’s books, carvings, and multimedia artworks.
5. Second Reading Speech, delivered by Peter Garrett, Minister for the Environment, Heritage and the Arts, 27 November 2008. To date, no reciprocal arrangements with other countries have been finalised. However, it is understood that progress has been made with several countries, and it was hoped that agreements would eventually be in place with France, Germany, Sweden, Hungary and Italy.
6. Italicised side headings in quotation marks are distillations of attitudes, not necessarily actual quotations.
7. Sanders, A, “Artists’ resale royalties: Bonus or burden?”, Art and Australia, Vol 42 No 3, Autumn 2004, 450. See also Stanford, J, Submission to the Department of Communications, Information Technology and the Arts Discussion Paper on the Proposed Resale Royalty Arrangement, 2004.
8. Only a small percentage of artists are able to make the transition from the primary market (initial sale of work) to the secondary market (resale).
9. The existence of the royalty may also prompt dealers to shift from buying works outright to holding them on consignment – thus deferring payments to artists – or discourage small margin intra-dealing trading: see Graddy K, Horowitz N and Szymanski S. A study into the effect on the UK art market of the introduction of the artist’s resale right, IP Institute, January 2008 (report commissioned by the UK Intellectual Property Office).
10. Indeed, in some of its more fanciful manifestations, the art market more resembles the medieval market in saints’ relics.
11. In the Australian scheme, the primary legal obligation to pay the royalty lies on the seller (Act, sec 20). This liability is shared with a dealer or auction house that acts on the sale. However, the decision as to who actually bears the economic burden of the payment is a matter for negotiation between the parties. It is expected that, in practice, this burden may often fall on the buyer.
12. Myer concluded that the effect would be negligible: see Myer, R, Report of the Contemporary Visual Arts and Craft Inquiry, Commonwealth of Australia, Canberra, 2002 (“Myer Report”), at 163.
13. A period of 12 months was suggested in the Report of the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts on its Inquiry into the Resale Royalty Right for Visual Artists Bill 2008, February 2009. In the UK, no royalty is payable by a gallery or other art market professional on an original work where it is sold within three years of direct purchase from the creator; and where the later sale by the gallery etc. does not exceed €10,000 (2006 Regulation 12(4)). The intended effect of this exemption is to encourage buyers to invest in works by less well-known artists whose potential is uncertain, and to encourage dealers to buy works directly from the artist’s studio instead of taking them on commission.
14. This of course assumes that “struggling” artists actually deserve help in the first place. However, one line of argument, primarily advanced by economists, questions this basic assumption. It attacks what is sees as the romantic myth of the struggling artist, and suggests that a royalty resale scheme is not needed because artists are already doing as well as they can expect or deserve. On this basis, for example, it has been argued that artists actually earn the same as other workers with similar training and personal characteristics: Filer, R, “The ‘Starving Artist’ – Myth or Reality? Earnings of Artists in the United States”, Journal of Political Economy, vol.94, no.1, February 1986, 56, cited in Graddy, op cit (note 9) at 45. Similarly, it has been argued that Van Gogh – an archetypal example of an artist who died before his work could bring him financial reward – should, with proper planning, have been able to begin reaping financial dividends from the large body of important work he had produced at the time of his suicide: Landes, W M, and Levine, D B, “The Economic Analysis of Art Law,” in Ginsburgh, V A, and Throsby, D, eds, Handbook of the Economics of Art and Culture, Elsevier, Amsterdam, 2006, at 232, cited in Graddy, op cit (note 9) at 45. Whatever the merits of this rather judgmental approach, the facts in Australia appear to be that the incomes of contemporary visual arts and craft practitioners in Australia are lower than that of the general workforce, and of artists in other fields (Myer, op cit note 12).
15. Sanders, A, op cit (note 7), at 451.
16. Graddy, op cit (note 9) at 2. Davies, C, and Addley, E, “Art dealers claim droit de suite levy threatens London’s art trade”, Guardian, 22 December 2011.
17. Hockney’s criticism (on behalf of the group “Artists Against Droit de Suite”) has been inflated into the rather sweeping claim that “in the UK, the droit de suite scheme has been condemned by the people it is designed to benefit”: Lewis, op cit (note 1), at 313. As a general statement, this does not appear to be correct. Graddy found that a majority of UK artists were in favour of resale royalties, even though many admitted to lacking much knowledge about it and were not expecting huge rewards from it: Graddy, op cit (note 9), at 45.
18. Merryman, cited in the House Standing Committee Report, op cit (note 13).
19. Under the UK scheme, there is a sliding scale of royalties (starting at a maximum rate of 4%), with the maximum amount payable on any particular sale being capped at €12,500, which applies to works sold for more than €2million. Imposing a cap has a number of effects. It reduces the immediate rewards to higher-end artists, but also reduces the burden on buyers of higher priced works. It also has the incidental effect of (artificially) reducing the proportionate share of very successful artists in the royalty pool.
20. Copyright Agency Limited website www.resaleroyalty.org.au; see also Australian Government 2013 Review of the Resale Royalty Scheme Discussion Paper and Terms of Reference, June 2013. This high percentage may be inflated in the early stages because of the special Australian transitional rule that limits the scheme to the second sale (and subsequent resales) after the commencement of the scheme on 9 June 2010: see discussion later in this article. Many Indigenous art centres buy work from the artist and then resell it, which satisfies the second sale requirement relatively quickly, whereas many non-Indigenous artists tend to sell through galleries on consignment, thus deferring their entitlement to royalty: see Boland, Michaela, “Possum first to receive royalty from artwork resale scheme”, The Australian, 25 October 2010.
21. She received a royalty of $250 for the sale of Seven Sisters Dreaming: see Boland, op cit (note 20).
22. The highest individual royalty was $50,000: Copyright Agency Limited website www.resaleroyalty.org.au
23. Act, sec 32. This applies whether the artist dies before or after the commencement of the scheme.
24. Graddy, op cit (note 9), at 2. Similarly the UK collection agency Design and Artists Copyright Society (DACS) reportedly estimates that total annual royalties will gradually increase from £3m to £12m once deceased estates are included. The extension has, predictably, revived arguments about the scheme in the UK: see Davies and Addley, op cit (note 16).
25. Information from Copyright Agency Limited and Australian Government 2013 Review of the Resale Royalty Scheme Discussion Paper and Terms of Reference, June 2013. After three years experience of the scheme, the Agency was reporting that although some royalties have been paid to the families of deceased artists, over 90% of the recipients were living, and they were receiving over 70% of the royalties paid (www.resaleroyalty.org.au). This may be contrasted with the claim by one commentator that the scheme has "failed to help anyone but a few wealthy heirs of deceased Australian masters" (John McDonald. "Fair trade",Sydney Morning Herald, 11 August 11, 2012).
26. Boland, Michaela, “Sidney Nolan widow Mary pays the price of surrendering citizenship”, The Australian, 13 December 2011.Under the Australian scheme, unless a reciprocal arrangement applies, an individual can only claim if they are a citizen or permanent resident of Australia (Act sec 14).
27. See note 19.
28. The fact that 70 years is the period allowed for copyright protection is not really to the point. In Australia, resale royalties are governed by a statutory scheme that is quite separate from copyright legislation. Although both concepts are directed at broadly similar economic ends – enabling creators to continue to participate in the commercial exploitation of their work – the substantial differences between the two concepts mean that what applies for one has no necessary application to the other. The most obvious of these differences is that literary work is essentially marketed as a commodity, by exploitation of the copyright through reproduction. In contrast, visual art is usually unique, and reproduction is only a very minor aspect. Reproduction (and copyright) is of course appropriate where art is commoditised by the issue of prints.
29. See also House Standing Committee, op cit (note 13) at para 2.65. To date, Australia has not negotiated any reciprocal arrangements with any other countries.
30. Klement, op cit (note 3), at 219.
31. Graddy, op cit (note 9) at 52.
32. Examples include the Boyd Level “negotiated resale rights” (NRR) scheme, which involves discounts being negotiated in return for a share of profits made on the first resale; and the Artist Pension Trust (APT), which involves a selected group of artists giving works to the Trust, in return for an entitlement to a percentage of the proceeds of the eventual long term resale of the work, plus a cut of other members’ entitlements. A further alternative is the much more straightforward procedure of artists simply setting aside an inventory of various works with a view to future sale at a (hopefully) appreciated price – in effect, this is similar to a self managed pension fund: Caves, R, Creative Industries: Contracts Between Art and Commerce, Cambridge and London: Harvard University Press, 2000, at 282. A quite different type of scheme has attracted the support of the Australian Commercial Galleries Association. This is along the lines of the Pollock-Krasner Foundation . It involves a self regulated industry-based foundation bestowing grants on the dual criteria of “recognisable artistic merit and financial need”, whether professional, personal or both, with a particular emphasis on Indigenous artists. This would be financed by “gifts” made on resales, calculated as a percentage of profit: Gregory, B & Ors, A Response to the Proposed Resale Royalty Arrangement Discussion Paper, 19 August 2004.
33. Graddy, op cit (note 9) at 48.
34. For example, the UK collection agency DACS estimated a cost per transaction of 28 pence, whereas the British Art Market Federation estimated initial compliance costs per transaction at up to £40. Evidence from European collecting agencies shows that the costs represent from 10% - 25% of the royalty: Klement op cit (note 3).
35. It is also possible that this consideration may tempt some dealers to shift their business focus away from lower priced sales, to the detriment of struggling artists.
36. Graddy, op cit (note 9), at 2.
37. “Resale royalty scheme simplified”, Media Release by Minister for Regional Australia, Regional Development and Local Government Minister for the Arts, 14 December, 2011.
38. Or, alternatively, “go underground” by implementing the sale as a “private” sale.
39. Graddy, op cit (note 9), at 49.
40. Klement op cit (note 3), at 223.
41. Klement op cit (note 3), at 222.
42. Lewis, op cit (note 1) at 317. Lewis also observes that although roughly a third of the fine art sold in the world is French in origin, only 7% of all French art sales take place in France, and that Paris has declined as a national — let alone international — art market, to the benefit of non-royalty markets such as New York. However, it appears that a major factor in this was that until 2001, foreign auction houses were prohibited from selling in France. Since that law was repealed, auctions sales in Paris have risen notably: Klement, op cit (note 3), at 222.
43. Graddy op cit (note 9), at 2.
44. Though there is now a significant part of the market for Indigenous artworks in the United States.
45. See Sotheby’s website at <http://www.sothebys.com/help/faq/faq_duringauction.html>.
46. For a 2007 list of the various schemes, together with their main features, see Appendix 2 of A Resale Royalty Right for Visual Artists: Options for its possible application to New Zealand, Discussion Paper, Ministry for Culture and Heritage, Wellington, April 2007. New Zealand abandoned its proposal to implement a royalty scheme following a change of government. For details of recent attempts to introduce a resale royalty scheme on a national basis in the United States, see Kevin P Ray, "California cannot require resale royalty on out-of-State art sales, but the most important issues remain to be addressed on remand", The National Law Review,18 June 2015
47. Lewis, op cit (note 1), at 316. Interestingly, in October 2012, it was reported that Italian tax authorities "have finally turned their attention" to investigating a number of art-related tax offences, including violating the droit de suite laws: Ermanno Rivetti, "Italy cracks down on art tax avoidance" in The Art Newspaper, International Edition No 239, section 2, page 3.
48. Klement concluded that the existence of a compulsory collection administration was a common feature of those European countries where a royalty has been effectively implemented – France, Belgium, Denmark, Finland and Germany: Klement, op cit (note 3), at 217.
49. In most jurisdictions, the royalty is payable on the whole of the resale price, not the resale profit. This can lead to the result that a royalty is payable on a sale even though the vendor is making a loss. However, this may not be as illogical as it first appears. Copyright royalties for a literary work are normally based on gross revenue, irrespective of whether the publisher makes a commercial profit on the publication. In the same way, it is arguable that the right to resale royalty should not depend on the resale proving commercially profitable. Be this as it may, there are also practical reasons for this approach. If the royalty were to be based on profit, this would require there to be an investigation of the vendor’s personal financial situation to determine if a profit has actually been made and, if so, how much. This in turn would mean that the original cost would have to be identified, as well as any other costs incurred on the work by the vendor over its period of ownership. These could be extremely difficult to determine or verify, as any tax accountant dealing with the nightmare of clients’ capital gains tax calculations might attest. Furthermore, there would presumably have to be some allowance made for the effects of inflation over the period of ownership. These factors would make the calculation of the royalty a major exercise in virtually every case. Considered in this light, it is not surprising that in jurisdictions that base the royalties on profit, the royalty scheme has proved to be less than successful.
50. Graddy, op cit (note 9), at 2. The level of success is (naturally) disputed.
51. See the Explanatory Memorandum for clause 34 of the Resale Royalty Right for Visual Artists Bill 2008.
52. Sanders, op cit (note 7). This view may possibly have more relevance to situations where the royalty is incorporated into normal copyright legislation. That is not the case in Australia: see note 28.
53. Graddy, op cit (note 9).
54. Act, sec 23.
55. Act, sec 11.
56. In other countries where similar schemes have been introduced, the royalty has been payable on all resales at the date of commencement: House Standing Committee Report, op cit (note 13), para 2.45.
57. The existing works exemption was evidently not the original intention of the drafters, but was inserted in the legislation, on legal advice, based on the argument that the legislation would otherwise constitute an acquisition of property on unjust terms, contrary to s 51(xxxi) of the Australian Constitution. The House Standing Committee (op cit, note 13) recommended that this decision be reviewed in the light of recent High Court decisions, but this was rejected. It is not clear whether the government considered alternative proposals which suggested avoiding the perceived constitutional difficulty by: (1) transferring formal legal liability for payment of the royalty to the buyer; or (2) undertaking to provide compensation if any disadvantage to sellers was proven.
58. The government evidently relied on findings in a commissioned study from Access Economics. That study was, however, based on estimates of 2, 5 and 10 years average turnaround times for an artwork: House Standing Committee Report, op cit (note 13), para 2.27.
59. Viscopy Ltd, Implications of the Australian Government’s Proposed Royalty Scheme, November 2008.
60. Any projections based on retrospective analysis must necessarily involve a large degree of guesswork, particularly as the Australian market of today is considerably different from that of 20 years ago.
61. A final issue about the exemption is the fear that its unusual nature may mean that reciprocal arrangements under the Berne Convention for the Protection of Literary and Artistic Rights may not be recognised by other countries operating resale schemes. This could mean that Australian artists will not receive any resale income when their work is sold in these countries. However, it appears that this fear has been overstated: House Standing Committee, op cit (note 13) at para 2.65.
62. Act, sec 10. In Europe, the threshold ranges from €400 (Germany) to €3,000 (Italy).
63. See Viscopy, op cit (note 59).
64. For example, art consultant Adrian Newstead was quoted as saying, "A resale royalty is no substitute whatsoever for enlightened government policy in the area of indigenous health, education and community development": see http://www.smh.com.au/news/arts/artists-to-be-paid-for-every-sale-forever-more/2008/08/08/1218139079799.html
65. Quiggin, R, "The Resale Royalty: An Overview" [2006] Indigenous Law Bulletin 19.
66. The Northern Myth Blog: submission by “Painter” 25/11/08, accessed at www.crikey.com.au. The figure of $1.5 million is the amount allocated to the scheme by the government over the first three years.
67. An additional factor in determining the cost to government is the amount of any tax deductions that will presumably be claimed by business purchasers. Sanders argues that, because of these deductions, the scheme would be “a taxpayer-funded subsidy to the wealthiest and most successful Australian artists and their descendants”: Sanders, op cit (note 7). However, this overlooks the fact that that royalties will presumably be taxable, so no element of subsidy is likely to arise. Overall, as the cost to government is small in the general scheme of things, there would be no case at all for any compensatory cuts to be made to funding in other areas.
68. Act, sec 12 and 15.
69. Defined in the Act as bodies established by a community for the purpose of supporting or promoting the welfare or cultural values of the community (sec 3).
70. Submission of Arts Law Council of Australia to the Inquiry into the Resale Royalty Right for Visual Artists Bill 2008 by the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts.
71. Since the Arts Law Council’s specialised Indigenous service, Artists in Black, commenced in 2004, it has drafted over 300 wills for Indigenous artists: Submission of Arts Law Council of Australia, op cit (note 70).
72. Frew, W, “No easy job giving distant artists their just deserts”, Sydney Morning Herald, 20 April 2011, p16.
73. To the extent that financial rewards act as an inventive for artists, this effect becomes weaker if the reward is relatively small, if it is uncertain and if it is delayed: see Alderman, E C, “Resale Royalties in the United States for Fine Visual Artists: an Alien Concept" (1992) 40 J Copyright Society USA 165, 283, cited in Radde, S “‘Droit de suite: The artist’s right to a resale royalty and the implications for New Zealand”, New Zealand Intellectual Property Journal, Volume 2, Part 12, May 2001 at 355. These are all factors that are characteristics of the Australian scheme. One could present this in a more positive light by treating the benefits under the royalty scheme as similar to superannuation benefits payable at an advanced stage of the artist’s career. One might also argue that the existence of the “existing right” exemption will actually act as a spur for artists to create new work that will be eligible for royalty on the first resale.
73A. For progress, see end note [5].
73B. A full review of the scheme was announced by the Minister for the Arts on 5 June 2013; Australian Government 2013 Review of the Resale Royalty Scheme Discussion Paper and Terms of Reference, June 2013 http://arts.gov.au/visual-arts/resale-royalty-scheme
74. Indigenous people represent only 2.6% of the Australian population, but in 2007, 24% of all art sales by Australian artists were of Indigenous works.
75. As an incidental benefit, curators might find it easier to keep track of works more easily.
76. Quiggin, op cit (note 65). The fact that the royalty is received as a matter of legal entitlement, rather than as a discretionary handout, is also a matter that should not be dismissed lightly.
© Philip McCouat 2012, 2013, 2014, 2015
Mode of citation: Philip McCouat, "Should artists get royalties?", Journal of Art in Society, www.artinsociety.com
We welcome your comments on this article
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