Above: Plaintiff Chuck Close.
The Ninth Circuit recently issued its decision regarding the validity of the California Resale Royalty Act (“CRRA”) in three consolidated appeals: Close v. Sotheby’s, Inc., No. 16-56234, The Sam Francis Foundation v. Christie’s, Inc., No. 16-56235 and The Sam Francis Foundation v. eBay Inc., No. 16-56252. 2018 WL 3322222 (9th Cir. July 6, 2018).
As previously discussed on this blog, the CRRA provides that an artist may recover a five percent royalty on subsequent sales of his or her artwork, subject to certain statutory limitations. The plaintiffs in these actions—The Sam Francis Foundation, the Estate of Robert Graham, and the artists Chuck Close and Laddie John Dill—sought recovery of these statutory royalties from the defendants—Christie’s, Sotheby’s and eBay. In response, the defendants argued that the CRRA was unconstitutional because it violated the principles of the “first sale doctrine,” codified in section 109(a) of the Copyright Act of 1976, pursuant to which the lawful owner of a copyrighted work is entitled to dispose of his or her ownership in that property without acquiring the permission of the copyright owner. The Ninth Circuit, therefore, was asked to determine whether the “first sale doctrine” preempted the CRRA.
Handing a resounding victory to the defendants, the Ninth Circuit upheld the Central District of California’s dismissal of the plaintiffs’ claims for resale royalties postdating January 1, 1978, the effective date of the 1976 Copyright Act. The Ninth Circuit largely adopted the defendants’ argument that the CRRA is expressly preempted by section 301(a) of the 1976 Copyright Act. In so holding, the Ninth Circuit determined that the right to resale royalties codified by the CRRA was “equivalent to the federal distribution right codified in § 106(3), as limited by the first sale doctrine codified in § 109(a).” Close, 2018 WL 3322222, at *6. As the court explained:
Although the CRRA’s resale royalty right and § 106(3)’s distribution right are not coextensive, they are equivalent. The two rights differ in that one grants artists the right to receive a percentage payment on all sales of artwork after the first, while the other grants artists the right to receive full payment on the first (and only the first) sale. But, at root, both concern the distribution of copies of artwork and define artists’ right (or lack thereof) to payment on downstream sales of those copies.
Significantly, the Court of Appeals determined that “the CRRA is designed precisely to . . . afford artists a right to at least some measure of payment on every sale after the first. . . . In effect, the CRRA creates an inalienable restraint on alienation.” Id. Accordingly, the court concluded, the CRRA conflicts with the first sale doctrine, which is meant to embody the rule against restraints on alienation:
In short, the CRRA does not merely grant an additional right beyond what federal copyright law already provides but fundamentally reshapes the contours of federal copyright law’s existing distribution rights. This runs counter to § 301(a), which precludes ‘all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright,’ even if they are not precisely within the contemplation of the Copyright Act.
The Ninth Circuit rejected arguments from the plaintiffs distinguishing between the distributional rights under the Copyright Act and the monetary rights created under the CRRA. See id. at *7 (finding that, despite “differences in how the CRRA and § 106(3) affect artists’ right to payment,” the “significant overlap” between their impacts is a sufficient basis for preemption). The panel also rejected an analogy that the plaintiffs drew between artists’ rights under the CRRA and artists’ right to privately contract with purchasers for resale royalties, noting that, while artists are permitted to contract freely under the Copyright Act, a statutory provision mandating payments to the artist for any subsequent sales imposes an impermissible restraint on the right of contract. See id. (“Plaintiffs have misunderstood the difference between a law that permits an act and a law that compels an act.”).
The Ninth Circuit’s decision will likely present a significant headwind for other states considering similar codifications of resale royalty legislation, and may shift the focus of those in favor of such protection back to the passage of federal resale royalty legislation.
 The Ninth Circuit declined to rule on the Takings Clause argument articulated by the defendants. Id. at *11.
 The decision did not end in total defeat for the plaintiffs. Relying heavily on its prior decision in Morseburg v. Balyon, 621 F.2d 972 (9th Cir. 1980), the Ninth Circuit found no preemption under the 1909 Copyright Act, which governed between the CRRA’s enactment on January 1, 1977 and the January 1, 1978 effective date of the 1976 Copyright Act. Close, 2018 WL 3322222, at *10. While acknowledging that several post-Morseburg Supreme Court cases cited by the defendants, including Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013) and Quality King Distributors, Inc. v. L’anza Research International, Inc., 523 U.S. 135 (1998), had created “tension” with Morseburg, the Ninth Circuit held steadfastly that it was “not persuaded that defendants have identified ‘clear irreconcilability’” between Morseburg and the intervening authority of the Supreme Court. Close, 2018 WL 3322222, at *9.
 The most recent legislation, the American Royalties Too Act of 2015, was introduced on April 16, 2015 in the House by Representative Jerrold Nadler (D-NY) and in the Senate by Senator Tammy Baldwin (D-WI), but both bills died in committee. See H.R. 1881, 114th Cong. (2015); S. 977, 114th Cong. (2015).