On July 11, 2017, Hughes Hubbard & Reed LLP hosted a brown-bag lunch on the business and law of auction houses. The Fine Arts Committee of the New York State Bar Association’s Entertainment, Arts & Sports Law Section sponsored the event.
The lunch’s panel included Sherri Cohen, Director of Trusts and Estates at Bonhams; Margaret J. Hoag, Vice President & Senior Counsel at Christie’s; Jonathan Illari, General Counsel, Americas at Phillips; Daniel H. Weiner, Partner at Hughes Hubbard & Reed LLP; and Frank K. Lord IV, Partner at Herrick Feinstein LLP. These experts in the industry provided different perspectives on auction sales of art. Lena Saltos, Associate General Counsel at URBN, and Elizabeth Urstadt of Stropheus, LLC, moderated. The discussion ranged from the business side of auction houses to legal challenges that arise in the art world.
In making business decisions, auction houses consider an array of questions distinct to the field. When asked to respond to art dealer Larry Gagosian’s comment that, in a single sales transaction, he represents both the buyer and the seller of an artwork, the panel emphasized that an auction house’s primary allegiance is to the seller. Sherri Cohen noted that auction houses must navigate situations in which the client has expressed objectives that do not necessarily result in selling to the highest bidder, and gave an example of a client who specified that the art she was selling must be used in an educational context once purchased. Ms. Cohen also noted that appraisals should be used only for the specified purpose provided in the report and that valuations for the same property can vary widely; for instance, for insurance replacement cost verses fair market estate tax value. Ms. Cohen explained that an auction house will provide complimentary auction estimates and once consigned ship the work to a known expert for authentication.
Maggie Hoag and Jonathan Illari discussed how the current trend of moving sales online poses new challenges for auction houses, as their historic business model depends on in-person interactions, and artwork seen in person can differ greatly from online reproductions, leading to greater potential for buyers’ dissatisfaction. Auction houses also experience competitive pressures from each other — Dan Weiner shared that he had suggested a reverse auction (where the auction houses bid for a consignment) for a client who was trying to decide between auction houses, and ironically, one of those auction houses expressed deep reservations about participating in such a process.
With regard to a few of the ongoing legal and compliance issues that arise, auction houses continue to be vigilant in detecting fraud, copyright violations and other unlawful practices surrounding the sale of art. They must be wary of perpetuating fraudulent artwork by putting it up for auction. Dan Weiner and Frank Lord IV noted that, just because an artist copies another artist’s work, he or she does not necessarily break any laws, even if he or she uses the original artist’s name. Whether the auction house’s actions in selling that copied work are legal depends on how it represents the artwork. Specifying that a piece is from the school of a particular artist, as opposed to by that artist, may help to clarify any confusion. However, liability can arise if auction houses themselves illegally reproduce images of artworks; this has happened when an auction house included images in its catalogue without permission of the copyright holder. Another area of legal concern is ensuring that items sold privately by auction houses are subject to the same standards as objects consigned for public auction. For example, if an object’s questionable provenance or title would preclude it from public sale by an auction house, that auction house would also be unable to broker a private sale for the object.
The discussion covered various challenges that auction houses face today. The panel of experts conveyed that they both look to established practices and think creatively when answering questions that arise, whether as attorneys working in-house at an auction house or as their outside counsel.
Carolyn Harbus assisted with drafting this post.