Above: Plaintiff Chuck Close.
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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.

Id.

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.

Id.[1]

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.”).[2]

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.[3]

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[1] The Ninth Circuit declined to rule on the Takings Clause argument articulated by the defendants. Id. at *11.

[2] 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.

[3] 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).

On June 13, 2018, Judge Frederic Block of the Eastern District of New York issued an impassioned decision upholding the $6.75 million damage award he granted the aerosol artists of 5Pointz in February 2018. The court denied the defendants’ post-trial motion to grant a new trial or vacate the February 2018 judgment under Federal Rules of Civil Procedure 59(a)[1] and 52(b).[2]

As discussed previously on this blog, this case arose from defendant property-developer Gerald Wolkoff’s decision to whitewash his Long Island City building complex (“5Pointz”), thereby destroying the extensive aerosol art he had previously permitted artists to paint on its walls.[3] Wolkoff acted in the aftermath of Judge Block’s denial of those artists’ application for a preliminary injunction against Wolkoff’s demolition of 5Pointz, but before Judge Block had issued a written decision and without providing the artists or the community any notice. On February 12, 2018, after a three-week trial, Judge Block ruled that the aerosol artworks at issue were of “recognized stature” under the Visual Artists Rights Act of 1990 (“VARA”) and that Wolkoff’s “willful”[4] destruction of them warranted the maximum amount of statutory damages.[5]

In moving for a new trial or to vacate Judge Block’s judgment, the defendants put forth two central arguments. First, they asserted that the court made several errors in applying the “recognized stature” standard under VARA. They contended that the court erroneously relied on plaintiffs’ expert Renee Vara’s after-the-fact assessments of the merit of the works, which they argued could not serve as proof that the works had achieved recognized stature at the time of their destruction.[6] They separately argued that Jonathan Cohen, the curator of 5Pointz, judged the quality of the artists, not the quality of the works, when he decided to allocate wall space to particular artists, so his assessments of artistic merit were irrelevant to the “recognized stature” inquiry.[7] They further argued that the court failed to make individualized findings of fact on recognized stature for each individual work.[8] Second, the defendants argued that no basis existed for the court to find that Wolkoff acted willfully when he surreptitiously whitewashed the walls of 5Pointz in the middle of the night, because Wolkoff had not violated “clearly established law.”[9] They claimed that, when Wolkoff whitewashed the building, it was not “clearly established” that VARA could apply to aerosol art at all, or that the works at issue were of “recognized stature.”[10]

Judge Block stood his ground. While noting summarily that there was “no basis” to grant the defendants’ motions under the relevant standard for setting aside a prior ruling, he acknowledged that the amount of public interest surrounding the case warranted the “fullest explication of the bases for [his] decision.”[11] Fully explicate he did, in a ruling and appendix totaling 89 pages (this in addition to his original 100-page February 2018 opinion).

Judge Block first provided further analysis of his finding of willfulness. He again focused on Wolkoff’s haste in whitewashing 5Pointz as soon as the court denied the artists’ motion for preliminary injunctive relief. Judge Block argued that Wolkoff acted “at his peril” in doing so, in light of the necessarily “interlocutory, tentative, [and] provisional” nature of a ruling on a preliminary injunction, about which Judge Block “presum[ed]” that Wolkoff’s “skilled counsel” had advised him.[12] In response to the defendants’ argument that Wolkoff had not acted willfully because he had not violated clearly established law, Judge Block asserted that the defendants had “conjure[d] up [that] argument out of whole cloth,” and that the Second Circuit has consistently held that willfulness can be “inferred” from the defendants’ conduct.[13]

Judge Block underscored Wolkoff’s disingenuous testimony and uncooperative demeanor on the witness stand as further factors in the willfulness determination. Judge Block found that Wolkoff had “knowingly mis[led] the Court on a material issue” when he claimed, during the October 2013 preliminary injunction proceedings, that he risked losing “hundreds of millions of dollars” unless he tore down 5Pointz by the end of 2013;[14] at trial four years later, Wolkoff acknowledged that he did not even apply for the requisite demolition permit until March 2014.[15] Judge Block deemed “incredible” Wolkoff’s attempts to justify his actions as having been in the artists’ best interest, and he highlighted Wolkoff’s “persistent refusal to directly answer the questions posed to him by [the court] and under cross-examination,” concluding succinctly, “I did not believe him.”[16] Ultimately, however, it was Wolkoff’s “conscious material misrepresentation” regarding the “imminent” need to demolish 5Pointz that most “stuck in [Judge Block’s] craw,” as Judge Block asserted that, without that misrepresentation, he “would not have rendered the same decision” on the artists’ request for a preliminary injunction.[17] “In the final analysis,” Judge Block concluded, “in addition to Wolkoff’s other reckless behavior, knowingly misleading the Court on a material issue simply cannot be condoned.”[18]

Judge Block also defended his ruling that the works were of “recognized stature” under VARA,[19] noting that courts should use common sense to determine whether a work warrants this broad protection.[20] In response to the defendants’ argument that Cohen’s testimony was not sufficient proof of the works’ recognized stature, Judge Block stated that he “could not disagree more.”[21] Referring to over 500 press mentions about Cohen, Judge Block explained that Cohen was one of the most prominent aerosol artists in the world and that he was “uniquely qualified” to recognize the stature of the 5Pointz works. “No one would contend that a work of art selected by the curator of the Museum of Modern Art, the Guggenheim, or the new Whitney Museum should not qualify as a work of recognized stature,” Judge Block reasoned, “[and] [t]he same can be said of the curator of 5Pointz.”[22] To the defendants’ argument that the works needed to have acquired recognition prior to their destruction, Judge Block noted that VARA explicitly leaves that question open.[23] Finally, in response to the defendants’ criticism that the court did not make its work-by-work findings explicit, Judge Block devoted a 60-page appendix to support his “recognized stature” determinations.[24]

As discussed previously on this blog, it remains to be seen whether Judge Block’s emphatic ruling and sizeable damages award will serve to protect otherwise vulnerable artists – by encouraging property owners to negotiate VARA rights with them in advance – or, perhaps counterintuitively, will act to the detriment of artists and the general public by disincentivizing developers from commissioning or allowing art on their property at all. Judge Block’s recent decision makes clear he is aware of this debate and confidently sides with the former position. In a footnote, he responded head-on to the latter criticism by citing a recent New York Times article reporting that aerosol artists have been commissioned to “bring[] a 5Pointz vibe to Lower Manhattan” as clear evidence that his decision has not “operated as . . . a deterrent” to public art.[25] Time will tell whether this continues to hold true.

Assuming, as Judge Block did in this decision, that Wolkoff intends to appeal, this case may provide more guidance on whether the three disjunctive prongs of the Carter test (recognition of stature by (i) art experts; (ii) other members of the artistic community; or (iii) some cross-section of society[26]) correctly interpret VARA’s requirement of “recognized stature.” While Judge Block suggested that even that test might be too rigorous, it is not beyond the realm of possibility that a panel of aesthetically conservative appellate judges could conclude that “aerosol art” sprayed on the exterior of decaying buildings and predestined to eventual destruction could not be what Congress had in mind when it created this requirement. Likewise, the reviewing court could take exception to Judge Block’s reliance on Jonathan Cohen’s appraisals of the works at issue as worthy of preservation – when he himself had previously “curated” them for inclusion at 5Pointz – or to Judge Block’s analogizing Cohen to curators at establishment institutions such as the Museum of Modern Art. Finally, it is not unusual for appeals courts to reverse or temper lower court decisions when they perceive that the trial judge lost his objectivity because of anger – even well-merited anger – at one of the parties. So it would not be surprising if the reviewing court reduced the $6.75 million award because – as Judge Block made explicit – he would have awarded a modest sum for the destruction of these works but for Wolkoff’s spiteful performance.[27]

On the other hand, the appeals court could affirm Judge Block because it, too, did not want to condone Wolkoff’s behavior, without giving further guidance on “recognized stature” or making a generalized statement about protection of street art outside the unusual facts of how 5Pointz came to be.

Hilary McDonnell assisted with drafting this post.

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[1] Under Rule 59(a), a losing party can ask the court to re-try a case if significant legal errors occurred during the trial. The moving party must make the motion within 28 days after the court formally enters its final judgment.
[2] A Rule 52(b) motion, which often accompanies a Rule 59(a) motion, allows a court to amend its judgment or make additional findings.
[3] Beginning in the early 1990s, Wolkoff agreed to let aerosol artists paint on the 5Pointz walls. Cohen v. G&M Realty L.P., No. 13-CV-05612(FB)(RLM), 2018 WL 851374, at *6 (E.D.N.Y. Feb. 12, 2018). 5Pointz soon became a mecca for internationally recognized aerosol artists, but Wolkoff decided to knock down the building in 2013 to make room for new, high-rise residential buildings. Id. The 5Pointz artists sued, seeking a preliminary injunction against Wolkoff under VARA. Id. at *1. On November 13, 2013, Judge Block denied the plaintiffs’ motion. Cohen v. G & M Realty L.P., 988 F. Supp. 2d 212, 214 (E.D.N.Y. 2013). On November 20, 2013, Wolkoff unexpectedly whitewashed 5Pointz, destroying 45 works of aerosol art. Cohen, 2018 WL 851374, at *6. In response, the artist-plaintiffs filed a Second Amended Complaint seeking damages under VARA. See id.
[4] 17 U.S.C. § 504(c)(2).
[5] 17 U.S.C. § 106A(a)(3)(B).
[6] Def.’s Mem. in Supp. of Mot. for a New Trial, or Alternatively, to Vacate the J. in Pls.’ Favor and Enter J. for Defs., or Alternatively, for Remittur, at 4.
[7] Id. at 14.
[8] Id. at 11.
[9] Id. at 26.
[10] Id. at 7.
[11] Cohen, 2018 WL 2973385, at *1.
[12] Id. at *2.
[13] Id. at *6.
[14] Id. at *3.
[15] Id. at *4. Wolkoff’s willful acts also seemed to offend Judge Block on a personal level, as Judge Block repeatedly used the first person throughout the opinion. Judge Block rarely referred to “the court,” but instead used the word “I” nearly fifty times in his opinion.
[16] Id. at *5.
[17] Id. at *2.
[18] Id. at *7.
[19] Id. While Judge Block reaffirmed that the test first enunciated in Carter v. Helmsley-Spear, Inc., 861 F. Supp. 303, 325 (S.D.N.Y. 1994) rev’d on other grounds, 71 F.3d 77 (2d Cir. 1995), is the appropriate standard for determining recognized stature, he also emphasized that there should not be “rigid views as to whether a particular work is worthy of protection as a work of visual art.” Cohen, 2018 WL 2973385, at *7.
[20] Id.
[21] Id.
[22] Id. at *8.
[23] Id.
[24] Id. at *10. While Judge Block expressly interpreted the Carter test to allow for a finding of “recognized stature” where a work is viewed as “meritorious” by art experts or members of the artistic community or some cross-section of society, id. at *7, he found that each work at issue in fact satisfied all three prongs.
[25] Id. at *10 n.19.
[26] Carter, 861 F. Supp. at 325.
[27] Cohen, 2018 WL 2973385, at *2.

On February 12, Judge Frederic Block of the Eastern District of New York awarded $6.75 million in statutory damages to the aerosol artists of “5Pointz,” agreeing with the jury’s advisory finding that property developer Jerry Wolkoff violated those artists’ “right of integrity” under the Visual Artists Rights Act (“VARA”).

As previously covered on this blog, VARA’s right of integrity grants a visual artist the right to prevent the destruction of her work of art so long as that work has achieved “recognized stature.”  Here, the court followed the test announced by a district court in Carter v. Helmsley-Spear, Inc. for establishing “recognized stature” under VARA, whereby a plaintiff must show, first, that the artwork at issue has “stature,” meaning that it is “viewed as meritorious,” and, second, “that this stature is ‘recognized’ by art experts, other members of the artistic community, or by some cross-section of society.”[1] In determining that 45 out of the 49 works in question had achieved recognized stature, Judge Block considered expert testimony as well as evidence of such factors as the artists’ recognition outside of their work on 5Pointz, “social media buzz” about the works, and whether the works had been selected for long-term display by lead plaintiff Jonathan Cohen in his role as quasi-curator of 5Pointz.[2] While Judge Block stressed that “expert testimony is not the sine qua non for establishing that a work of visual art is of recognized stature,” he gave substantial weight to the testimony of plaintiffs’ expert regarding the technical skill employed in the creation of each work, the importance of 5Pointz as an aerosol art mecca, interest in the works from art world academics and professionals, and her own professional opinion that all 49 works were of recognized stature.[3]

In awarding damages, Judge Block rejected the plaintiffs’ calculation of actual damages because the plaintiffs’ expert failed to account for the cost (or even practicality) of removing the works which had been painted directly onto the 5Pointz walls; did not provide sufficient evidentiary justification for the valuation for each work; and did not consider the narrow market for works as large as the 5Pointz works.[4] While concluding that the artists had failed to prove actual damages, Judge Block underscored the importance of statutory damages to this area of law where actual damages are often difficult to calculate – and found that plaintiffs had earned the maximum amounts of statutory damages allowed under the Copyright Act for willful infringement of their rights.[5]

In assessing statutory damages, Judge Block applied a six-factor test in which he analyzed “(1) the infringer’s state of mind; (2) the expenses saved, and profits earned, by the infringer; (3) the revenue lost by the copyright holder; (4) the deterrent effect on the infringer and third parties; (5) the infringer’s cooperation in providing evidence concerning the value of the infringing material; and (6) the conduct and attitude of the parties.”[6] Judge Block found that the first factor weighed heavily in the plaintiffs’ favor due to Wolkoff’s willfulness in destroying the works.[7] Though Judge Block stated that the second factor is not a clean fit for a VARA case, he found that Wolkoff indirectly profited by pushing the development project forward in the face of the VARA lawsuit – and directly profited by charging licensing fees to film at the site – and that therefore this factor also weighed in the plaintiffs’ favor.[8] The third factor likewise tilted toward plaintiffs because the value of 5Pointz to their careers was significant – albeit difficult to quantify – and thus 5Pointz’s destruction was a loss.[9] With regard to the sixth factor, Judge Block found that the balance of Wolkoff’s “problematic conduct” on one side and plaintiffs’ “dignity, maturity [and] respect” on the other tilted this factor decidedly in plaintiffs’ favor.[10]

Most critically, however, Judge Block identified the fourth factor – the deterrent effect on the infringer and third parties – as “perhaps the most important factor in the case,” going on to elaborate:

Without a significant statutory damages award, the preservative goals of VARA cannot be met. If potential infringers believe that they can violate VARA at will and escape liability because plaintiffs are not able to provide a reliable financial valuation for their works, VARA will have no teeth.[11]

Again pointing to Wolkoff’s lack of remorse, and citing Wolkoff’s conduct and testimony as demonstrating that he was “singularly unrepentant” and “remain[ed] undeterred,” Judge Block concluded that this fourth factor “could not cut more strongly in favor of a high statutory damages award.”[12] At least twice, Judge Block noted that the value of the site had increased from $40 million to $200 million once Wolkoff had succeeded in obtaining a zoning variance to permit his redevelopment, and this doubtless played a role in the court’s calculation of an appropriate deterrent.[13]

While Judge Block maintained an even-handed tone throughout his 50-page opinion (plus 50 pages reproducing the artwork in question), there was no mistaking that his decision was greatly influenced by what he termed the “insolence” that Wolkoff had displayed both in and out of court.[14] Plainly, Judge Block was offended by Wolkoff’s precipitous decision to whitewash the walls of 5Pointz for no apparent reason just eight days after Judge Block had rejected the artists’ motion for a preliminary injunction, before Judge Block had time to explain that preliminary ruling in a written decision, and without giving the artists the 90 days’ written notice required under VARA. Similarly, Judge Block noted that, while Wolkoff had “in the main” told the truth in his trial testimony, the developer did not abide by Judge Block’s admonitions to answer questions directly and was instead “argumentative and prone to tangents and non-responsive answers.”[15] Perhaps even Wolkoff now understands the first rule of court: don’t insult the judge.

This may not be the end of the 5Pointz dispute, as defendants have until March 14 to file an appeal. So long as Judge Block’s ruling stands, however, the decision sends a message that developers and property owners ignore VARA at their own peril. Perhaps the most important practical point can be found in a footnote Judge Block inserted at the end of the decision, in which he noted that disputes such as this one can be easily avoided by property owners’ obtaining a “written waiver of the artists’ VARA rights up front, as § 113(d) expressly contemplates.”[16]

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[1] Carter v. Helmsley-Spear Inc., 861 F. Supp. 303, 325 (S.D.N.Y. 1994) (“Carter I”), aff’d in part, vacated in part, rev’d in part, 71 F.3d 77 (2d Cir. 1995). Judge Block noted that Carter I “remains the seminal case interpreting the phrase ‘recognized stature.’” G&M Realty L.P., at *11.

[2] G&M Realty L.P., at *12-13. In making his determination for why four of the works did not achieve recognized stature, Judge Block cited the fact that they had not attracted “significant” third-party attention or social media buzz.

[3] Id. at *12. Judge Block went on to criticize defendants’ expert for both her restrictive interpretation of “recognized stature”—what Judge Block described as being akin to a “masterpiece standard”—and for her overly restrictive social media and academic search methodology.

[4] Id. at *15.

[5] Id. at *19. For all 45 works eligible for statutory damages, Judge Block granted the maximum statutory damages available – $150,000 – after finding Wolkoff’s infringement willful.

[6] Id. at *18 (citation omitted). Judge Block did not consider the fifth factor, which he found does not apply to VARA cases.

[7] Id.

[8] Id.

[9] Id. at *18-19.

[10] Id. at *19.

[11] Id.

[12] Id.

[13] Readers can also speculate what Judge Block had in mind when he referred to the new housing Wolkoff planned to build on the site at six different places in his decision as “luxury condos.”

[14] Cohen v. G&M Realty L.P., 2018 WL 851374, at *19 (E.D.N.Y. Feb. 12, 2018).

[15] Id. at *5 (E.D.N.Y. Feb. 12, 2018).

[16] Id. at *19 n.22. Similarly, in a Wall Street Journal article following the jury’s advisory verdict in November, Michael Salzman, co-chair of Hughes Hubbard & Reed’s art law practice, highlighted the 5Pointz developer’s missed opportunity to obtain waivers from each of the artists in order to protect himself from their assertion of VARA rights down the road.

Id

On October 27, 2017, the New York Chapter of the Copyright Society of the USA hosted a panel exploring the history, caselaw and policies underlying the Visual Artists Rights Act (“VARA”).[1]  The panel featured Amy Adler, Emily Kempin Professor of Law at New York University School of Law; Irina Tarsis, Founder and Director of the Center for Art Law; and Daniel H. Weiner, Partner at Hughes Hubbard & Reed LLP.  Barry Werbin, Counsel at Herrick, Feinstein LLP, moderated the panel.  Each of the panelists’ unique VARA experience engendered a well-rounded review of a hot area of law.  Fittingly, the panel took place during the second week of the “5Pointz” jury trial, in which the very issues under discussion were being litigated before Judge Block of the Eastern District of New York.[2]

Enacted in 1990, VARA provides artists with “moral rights” protection for their visual works of art, provided the works themselves meet certain requirements.[3]  The two main protections VARA offers are the “right of attribution” and the “right of integrity.”[4]  The right of attribution grants the artist the right to claim authorship of her work (in other words, to prevent the attribution of the artist’s work to someone other than herself) and to prevent the false attribution to her of a work of art she did not create.[5]  The right of integrity grants the artist the right to prevent any intentional modification of her work that would be “prejudicial to his or her honor or reputation.”[6]  The right of integrity also grants an artist the right to prevent the destruction of her work of art so long as that work has achieved “recognized stature.”[7]

Dan Weiner started off the panel by looking back at some of the most important cases in VARA’s history.  Mr. Weiner first spoke about his experience litigating the first case decided under VARA, Carter v. Helmsley-Spear,[8] as plaintiffs’ counsel.  Twenty-three years later, that seminal case served as a central precedent in the 5Pointz trial, as the Helmsley-Spear district court opinion established the test for determining whether a work has achieved “recognized stature” under VARA.  Under this two-tiered test, a plaintiff must first show that the artwork at issue has “stature,” meaning that it is “viewed as meritorious,” and, second, “that this stature is ‘recognized’ by art experts, other members of the artistic community, or by some cross-section of society.”[9]  Mr. Weiner then provided synopses of several of the most prominent post-Helmsley-Spear VARA cases, including Martin v. City of Indianapolis,[10] Phillips v. Pembroke Real Estate,[11] and Massachusetts Museum of Contemporary Art Foundation v. Büchel.[12]

In her presentation, Professor Adler discussed some of the policy considerations implicated by VARA, with a focus on the tension between American copyright law and Europe’s more author-centric civil law tradition of moral rights, “droit moral.”  While the rights granted by VARA are substantially more expansive than the rights otherwise granted under the U.S. Copyright Act, VARA rights are relatively limited when compared with droit moral—both as a matter of the plain language of the statute and, in particular, as a matter of the courts’ narrow interpretation and application of the law.  While acknowledging the almost universal agreement among scholars, practitioners and artists that American moral rights should be expanded—and while granting that, to some degree, she is coming at the issue as a devil’s advocate—Professor Adler advanced her own argument “against moral rights.”  From a policy perspective, she questioned whether it is right to assume that artists given this set of rights would in fact wield them in a manner consistent with the public interest.  For example, Professor Adler suggested that there may be circumstances under which artistic destruction is in the best interest of the public, or, conversely, where an artist’s impulse may be to destroy his work when the public interest is in that work’s preservation.

Irina Tarsis wrapped up the panel by discussing several ongoing litigations invoking VARA, with particular emphasis on the 5Pointz trial.  Ms. Tarsis shared her impressions of the trial after attending as an observer over the course of its first weeks; she noted that much of the testimony focused on the legitimacy of graffiti or “aerosol art” as an art form.  We now know that the 5Pointz jury ultimately agreed[13] with plaintiffs that the “aerosol art” works at issue achieved “recognized stature.

In the Q&A session following the panelists’ presentations, all three panelists indicated that they shared an interest in promoting the creation of more public art; however, there was no consensus on how effective they thought VARA would prove in furthering that goal. As we await a judicial ruling in the 5Pointz trial, the question lingers as to whether following the jury’s recommendation in favor of the aerosol-artist plaintiffs would embolden other artists to use their VARA rights to their advantage, or, ironically, if it will disadvantage artists by scaring developers away from commissioning or even allowing art on their property—a harm which VARA cannot remedy.

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[1] 17 U.S.C. § 106A.

[2] Cohen v. G&M Realty L.P., 1:13-cv-05612-FB-RLM (E.D.N.Y. filed October, 10, 2013). As discussed further in a separate piece on this blog, the 5Pointz jury subsequently returned an advisory verdict finding that the property-developer defendant violated the 21 “aerosol artist” plaintiffs’ VARA rights.  A written decision from Judge Block is expected.

[3] An earlier piece on this blog examines the distinction between a work of visual art and a work of applied art, to which VARA’s protections does not apply.

[4] 17 U.S.C. § 106A(a).

[5] Id.

[6] Id.

[7] Id.

[8] Carter v. Helmsley-Spear Inc., 861 F.Supp. 303, 325 (S.D.N.Y. 1994), rev’d on other grounds, 71 F.3d 77 (2d Cir. 1995).

[9] Id. at 325.

[10] Martin v. City of Indianapolis, 982 F. Supp 625 (S.D. Ind. 1997), aff’d, 192 F.3d 608 (7th Cir. 1999).

[11] Phillips v. Pembroke Real Estate Inc., 288 F. Supp 2d 89 (D. Mass. 2003), aff’d, 459 F.3d 128 (1st Cir. 2006).

[12] Mass. Museum of Contemporary Art Found. v. Büchel, 565 F. Supp. 2d 245 (D. Mass. 2008), aff’d in part, vacated in part, 593 F.3d 38 (1st Cir. 2010).

[13] Michael Salzman, co-chair of Hughes Hubbard & Reed’s art law practice, is quoted in this Wall Street Journal article regarding the 5Pointz developer’s missed opportunity of obtaining waivers from each of the artists in order to proactively protect himself from the artists asserting their VARA rights down the road.

Id.

“5Pointz” Jury Returns Advisory Verdict in Favor of Graffiti Artists.

A six-member jury has returned an advisory verdict finding that a property developer violated more than twenty graffiti artists’ “right of integrity” under the Visual Artists Rights Act (“VARA”) when it whitewashed a building bearing nearly fifty of those artists’ works. As covered previously on this blog, the artist plaintiffs filed suit under VARA in 2013, seeking to enjoin developer Wolkoff’s demolition of that Long Island City building, nicknamed “5Pointz,” which Wolkoff had previously invited the artists to use as their canvas, and which had eventually gained renown as a “graffiti Mecca.” In November 2013, Judge Frederic Block of the federal court in the Eastern District of New York denied the injunction, but allowed the case to go forward on the artists’ claim for damages.1 Before Judge Block had even issued a written decision, Wolkoff whitewashed the building. The actual demolition of 5Pointz began in August 2014, making way for two luxury high rise towers that are slated for completion by the end of this year.

In March 2017, Judge Block partially granted defendants’ motion for summary judgment, but allowed plaintiffs’ VARA claims to proceed to trial.2 On November 8, 2017, after three weeks of trial testimony, the jury returned a verdict in favor of plaintiffs, finding, among other things, that the “aerosol art” works at issue had indeed achieved “recognized stature” under VARA. The verdict marks the first time that graffiti has been recognized as subject to VARA protection under federal law.

By stipulation of the parties, however, the jury’s verdict is advisory, not final. In addition to the jury’s recommendation, Judge Block will consider post-trial briefs from the parties, due December 11, 2017, before issuing a written decision on liability and damages. If he finds the defendants liable, it will be interesting to see what damages he arrives at. Under the Copyright Act, the court has wide discretion in setting damages, which, at the plaintiffs’ election, may be either actual damages or a statutory sum ranging from $750 to $30,000 per work “as the court considers just” – and up to $150,000 per work if Judge Block finds that the infringement of the artists’ rights was “willful.”3 The court, in its discretion, may also allow recovery of costs and may award attorney’s fees.4

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1. Cohen v. G&M Realty, 988 F. Supp 2d 212 (E.D.N.Y. 2013).
2. Cohen v. G&M Realty L.P., No. 13-CV-5612 (FB), 2017 WL 1208416 (E.D.N.Y. Mar. 31, 2017). While allowing the VARA claims to go forward, Judge Block dismissed the plaintiffs’ claims for conversion, property damage, and intentional infliction of emotional distress, as well as the defendants’ counterclaim for abuse of process.
3. 17 U.S.C. § 504.
4. Id. § 505

Above: Plaintiff Chuck Close.
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The Ninth Circuit has pending before it for the second time a significant challenge to the validity of the California Resale Royalty Act (“CRRA”) stemming from three related cases: Sam Francis Foundation v. Christie’s, Inc., Case No. 16-56235 (9th Cir. notice of appeal filed Aug. 26, 2016); Chuck Close v. Sotheby’s, Inc., Case No. 16-56234 (9th Cir. notice of appeal filed Aug. 26, 2016); and Sam Francis Foundation v. eBay Inc., Case No. 16-56252 (9th Cir. notice of appeal filed Aug. 26, 2016).

These cases will require the Ninth Circuit to examine the scope of the “first sale doctrine” and determine whether it is at odds with California’s attempt to establish economic rights for visual artists on subsequent sales of their works.

I.  Doctrinal Background

A. The CCRA

California enacted the CRRA in 1976 for the purpose of offering visual artists similar financial protections to artists in other media.1  The California statute codifies droit de suite (literally, “a right to follow”), which provides visual artists with a royalty each time one of their works is resold.2  The rationale, at least in part, is that visual artists are often disadvantaged by a time-lag between a work’s initial sale and the ultimate realization of that work’s value.3

To combat this perceived inequity, section 986(a) of the CRRA provides that, subject to certain limitations, “[w]henever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller’s agent shall pay to the artist of such work of fine art or to such artist’s agent 5 percent of the amount of such sale.”4

Notwithstanding several attempts by members of the United States Congress to enact federal resale royalty legislation,5 the CRRA represents the only U.S. codification of such a right at present.6  Nevertheless, droit de suite has been codified in several jurisdictions outside the U.S., including France, England and Australia.7

B. The First Sale Doctrine

Section 109(a) of the Copyright Act of 1976 enacts what is widely known as the “first sale doctrine.”8  Under the first sale doctrine, 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.9  “[O]nce a work has been sold, the copyright owner has no further right to control the resale of the work, and the new owner is free to dispose of the work as he or she chooses.”10  As a matter of policy, the first sale doctrine is an embodiment of the rule against restraints on alienation, a central tenet of property law from time immemorial.11  The question raised by these cases is whether a resale royalty requirement imposes such a restraint on alienation of copyrighted works of art.

II.  Procedural Background

In 2011, plaintiffs The Sam Francis Foundation, the Estate of Robert Graham, Chuck Close and Laddie John Dill together filed putative class action lawsuits against each of Christie’s, Inc., Sotheby’s, Inc. and eBay, Inc., alleging “the willful and systematic violation by [each defendant] of its California law obligation [under the CRRA] to pay royalties to U.S. artists and their estates on artworks sold either in California or at auction by California sellers.”12

The defendants moved to dismiss, articulating several bases for the invalidity of the CRRA, including that the CRRA violated the Commerce Clause of the U.S. Constitution, violated the Takings Clause of the Fifth Amendment, and was preempted by the Copyright Act of 1976.13  In 2012, the Central District of California granted dismissal on the sole basis that the CRRA violated the dormant Commerce Clause by “controlling commerce ‘occurring wholly outside the boundaries’ of California even though it may have some ‘effects within the State.’”14

In June 2012, the plaintiffs appealed the Central District’s order. In 2015, sitting en banc, the Ninth Circuit concluded that, while the CRRA “facially violates” the dormant Commerce Clause insofar as it regulates the sale of fine art taking place outside the state of California, “the offending provision [of the CRRA] is severable from the remainder of the Act.”15  Thus, the CRRA remained valid as to in-state sales of fine art.16  Since the district court had ruled that the CRRA as a whole was invalid, the Ninth Circuit remanded for a determination on the defendants’ alternative grounds for dismissal.

On February 1, 2016, the defendants submitted a second round of motions to dismiss, largely renewing their previously-submitted bases for dismissal.17  In an April 2016 order granting the defendants’ motions to dismiss, the Central District of California held that the CRRA was invalid as preempted by federal copyright law.18  The court determined that the CRRA conflicted with the intent of Congress, which had demonstrated its desire to “keep downstream sales of copyrighted works [ ] free from restrictions imposed by copyright holders” when it enacted section 109(a).19  The court also found that the CRRA was expressly preempted by section 301(a) of the Copyright Act of 1976, which dictates that the rights contained in section 106 of the 1976 Act are the “exclusive rights of copyright holders.”20  This order is the decision from which the current appeals stem.

III.  Current Challenge to the CRRA

Critical to the arguments articulated in both parties’ appellate briefs lies one crucial sub-issue: how broadly the first sale doctrine should be interpreted.

Relying on the Ninth Circuit’s 1980 Morseburg decision, the plaintiffs contend in their opening brief that the district court erred in finding a conflict between the CRRA and the Copyright Act of 1976:  “The first sale doctrine prevents copyright holders from prohibiting or controlling downstream distribution of copyrighted works. . . .  It has nothing to do with the right of copyright holders to possess a financial interest in the proceeds of a sale.”21  The plaintiffs reiterate this argument in speaking to the district court’s determination that the CRRA was expressly preempted by section 301(a) of the 1976 Act, arguing that the CRRA does not create an “equivalent” right to those provided for in section 106; therefore, section 301(a) does not apply.22

In contrast, the defendants favor an expansive reading of the first sale doctrine in their answering brief. “Under the first sale doctrine, once a visual artist sells artwork, the artist loses the ability to interfere with future sales.”23  In support of this interpretation, the defendants look to Supreme Court and Ninth Circuit precedent addressing the first sale doctrine:  Kirtsaeng, Quality King, and Omega v. Costco.24  The defendants rely on these decisions for the proposition that the loss of the copyright holder’s exclusive right to control distribution of a work of art after its initial sale should be read to include a loss of the copyright holder’s ability to profit from subsequent sales.25  In other words, the defendants argue that “the Copyright Act intends [downstream resale transactions of works of fine art] to be unrestricted.”26

Addressing these arguments, the plaintiffs’ reply brief focuses on the Supreme Court’s recent Lexmark decision.27  In that patent case, the Supreme Court considered the scope of the “exhaustion doctrine,” which is essentially the patent law analog of the first sale doctrine.28  The CRRA plaintiffs’ reply brief cites dicta from the Supreme Court’s Lexmark opinion standing for the proposition that contract rights and patent rights exist side by side, and that while the sale of a product may extinguish the patent holder’s patent rights, it does not terminate the rights preserved by the patent holder in contract.29  Extrapolating from the Court’s rationale, and transposing it from the context of patent law to that of copyright law, the CRRA plaintiffs argue that, just as contract entitlements endure despite the first sale doctrine, statutory entitlements like the CRRA should not be terminated by the first sale of a copyrighted work.30

The CRRA plaintiffs’ reliance on Lexmark is particularly intriguing, given that the opinion also includes rhetoric that the CRRA defendants pointed to in support of their position – e.g., Chief Justice Roberts’s comment that “extending [intellectual property] rights beyond the first sale would clog the channels of commerce.”31  In any event, it will be interesting to see whether the Ninth Circuit applies Lexmark in determining these cases – and if so, to whose benefit.

IV.  Looking Forward

Despite the Ninth Circuit’s previous holding as to the in-state-only applicability of the CRRA, the Ninth Circuit’s decision on the current appeals has potential implications reaching beyond California’s borders. If the Ninth Circuit decides in favor of the plaintiffs, holding that the CRRA is not preempted by the Copyright Act of 1976, it may inspire other states to enact similar legislation codifying droit de suite. If the defendants prevail, and the CRRA is struck down, it may re-ignite interest in a federal codification of droit de suite that amends the first sale doctrine.

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1. See Anna J. Mitran, Note, Royalties Too?: Exploring Resale Royalties for New Media Art, 101 Cornell L. Rev. 1349, 1354 (2016); John E. McInerney III, California Resale Royalties Act: Private Sector Enforcement, 19 U.S.F. L. Rev. 1, 5 (1984).
2. See David E. Shipley, Droit de Suite, Copyright’s First Sale Doctrine and Preemption of State Law, 39 Hasting Commnc’s & Enter. L. J. 1, 2 (2017).
3. See McInerney, supra note 1, at 5; Mitran, supra note 1, at 1354.
4. Cal. Civ. Code § 986(a).  As discussed further below, the Ninth Circuit has ruled that the language “the seller resides in California or” facially violates the dormant Commerce Clause and should be read out of the statue. See infra nn.15–16 & accompanying text.
5. See Mitran, supra note 1, at 1363.
6. See Shipley, supra note 2, at 7; see also Droit de Suite: The Artist’s Resale Royalty, December 1992, A Report of the Register of Copyrights, 75 (“[Since the CRRA was enacted, d]roit de suite legislation has been introduced in Connecticut, Florida, Illinois, Iowa, Maine, Michigan, Nebraska, New York, Ohio, Rhode Island, and Texas.  To date, none has become state law.”).
7. See generally Herbert Lazerow, Art Resale Royalty Options, 63 J. COPYRIGHT SOC’Y 201 (2016).
8. See 17 U.S.C. § 109(a).
9. See McInerney, supra note 1, at 5; Shipley, supra note 2, at 2.
10. McInerney, supra note 1, at 17 n.110.  This entitlement of the new owner to resell the copyrighted work does not affect ownership of the copyright in that work.  Thus, the copyright holder’s rights and the new owner’s rights coexist within the same framework, without conflict with one another. Id.
11. See Kimberley Byer, Note, The Death of the First Sale Doctrine, 11 J. on Telecomm. & High Tech. L. 389, 392 (2013).
12. Complaint ¶ 1, Sam Francis Found. v. Christie’s, Inc., No. 11-08605-MWF-FFM (C.D. Cal. Oct. 18, 2011), ECF No. 1; Complaint ¶ 1, Estate of Robert Graham v. Sotheby’s, Inc., No. 11-08604-MWF-FFM (C.D. Cal. Oct. 18, 2011), ECF No. 1; Complaint ¶ 1, Sam Francis Found. v. eBay Inc., No. 11-06822-MWF-PLA (C.D. Cal. Oct. 18, 2011), ECF No. 1.  The Sam Francis Foundation was not a named plaintiff in the suit against Sotheby’s.
13. See, e.g., First Joint Motion to Dismiss, Christie’s, No. 11-08605-MWF-FFM, ECF No. 15.  The defendants’ motions also argued that the complaints failed to state a claim under Federal Rule of Civil Procedure 12(b)(6).
14. E.g., Order Granting First Joint Motion to Dismiss at 16, Christie’s, No. 11-08605-MWF-FFM, ECF No. 38.
15. Sam Francis Found. v. Christies, Inc., 784 F.3d 1320, 1322 (9th Cir. 2015).
16. See id. at 1326.
17. E.g., Second Joint Motion to Dismiss, Christie’s, No. 11-08605-MWF-FFM, ECF No. 103.
18. E.g., Civil Minutes: Order re Motions to Dismiss at 10, Christie’s, No. 11-08605-MWF-FFM, ECF No. 113.
19. Id.
20. Id. at 17 (quoting Laws v. Sony Music Entm’t, Inc., 448 F.3d 1134, 1137 (9th Cir. 2006)).  The Central District also held that (i) the CRRA did not constitute a Fifth Amendment “taking”; (ii) eBay was not a proper defendant (i.e., a seller of fine art or seller’s agent) under the CRRA; (iii) punitive damages were not available under the CRRA; (iv) the Estate of Robert Graham had no capacity to sue, and was thus not a proper plaintiff; (v) the complaints adequately plead sufficiently plausible facts under Rule 8; and (vi) Sotheby’s Motion to Dismiss for lack of subject-matter jurisdiction was more appropriately adjudicated on a motion for summary judgment.
21. See, e.g., Appellants’ Opening Brief at 27, eBay, No. 16-56252 (9th Cir. Mar. 8, 2017), ECF No. 8 (citing Morseburg v. Baylon, 621 F.2d 972 (9th Cir. 1980)).  In Morseburg, an art dealer who became obligated to pay royalties under the CRRA brought suit to challenge the validity of the act, arguing, among other things, that the CRRA was preempted by the first sale doctrine codified in the Copyright Act of 1909.  621 F.2d at 974-75.  The Morseburg court, upholding the validity of the CRRA, determined that there was no preemption under the 1909 Act. Id. at 978.  However, the court explicitly stated that it was not addressing the issue of CRRA preemption by the 1976 Copyright Act. Id. at 975.
22. See Appellants’ Opening Brief at 41-47; see also 17 U.S.C. § 301(a) (establishing that “all legal or equitable rights that are equivalent to any of the exclusive rights . . . specified by section 106 . . . are governed exclusively by this title” (emphasis added)).
23. See Joint Brief of Appellees Christie’s & Sotheby’s at 14, No. 16-56235 (9th Cir. June 20, 2017), ECF No. 26.
24. Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013); Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998); Omega S.A. v. Costco Wholesale Corp., 776 F.3d 692 (9th Cir. 2015).
25. See Joint Brief of Appellees Christie’s & Sotheby’s at 14-18.
26. Id. at 20.
27. See, e.g., Appellants’ Reply Brief at 2-7, Sotheby’s, No. 16-56234 (9th Cir. Aug. 21, 2017), ECF No. 44 (discussing Impression Prods., Inc. v. Lexmark Int’l, Inc., 137 S. Ct. 1523 (2017)).
28. Cf. Lexmark, 137 S. Ct. at 1527 (analogizing the exhaustion doctrine and the first sale doctrine).
29. See Appellants’ Reply Brief at 5.
30. See id. at 6-7.
31. Joint Brief of Appellees Christie’s & Sotheby’s at 18 (quoting Lexmark, 137 S. Ct. at 1532); see also id. (quoting Lexmark, 137 S. Ct. at 1534 (characterizing the exhaustion doctrine as “reflect[ing] the principle that, when an item passes into commerce, it should not be shaded by a legal cloud . . . as it moves through the marketplace”)).