LawFont.com

On 3 October, Australian Arts Minister Peter Garrett announced that the Australian Federal Government plans to introduce a resale royalty right for works of visual art by 1 July 2009. This right will ensure that visual artists receive a portion of the proceeds from resales of their works. The legislation establishing the resale royalty right scheme has not yet been introduced in Parliament, but is expected bythe end of 2008.

The Government has issued a fact sheet on how the right would be structured. In short, the resale royalty scheme would involve a mandatory five per cent artist’s royalty on resales of artworks, when works are sold for $1,000 or more. The right will apply to works by living artists and for a period of 70 years after the artist’s death.

The definition of artistic works covered will include original works of graphic or plastic art, such as paintings, collages, drawings, limited edition prints, sculptures, a ceramics, glassware, and photographs.

The royalty will be payable to artists who are Australian citizens or permanent residents, or to their heirs.

Notably, the right itself will be inalienable (it cannot be transferred) or waived.

Eligible resales include all “involving art market professionals, public institutions or organisations, and all resales subsequent to the first transfer of ownership, regardless of whether the first transfer was made by sale, gift or any other means.” Resale royalties will be collected and distributed to artists by a single collecting society, to be selected by the Government through a competitive tender process.

The scheme is intended to apply only to resales of original works acquired after the scheme takes effect. It will not be restricted to works created after the scheme is enacted.

The resale royalty right, also known as the droit de suite, has long been recognised in a number of countries, most notably in Europe, as well as in some Latin American and African countries. The United States does not recognise the right of resale.

There are multiple justifications for adopting the right in Australia. One is that it addresses an existing imbalance, in which visual artists benefit less from copyright than do other creators of copyright-protected works, such as authors and composers. Every time a book or song is sold, the creator receives a royalty from that sale. The same is not true when an original painting, photograph, or print is sold.

The potential benefit is said to be particularly significant for Aboriginal artists, whose work has gained in value in recent years, sometimes quite dramatically. For example, one painting by such an artist, which sold for A$2.4 million in 2007, was originally purchased in 1977 for the modest sum of A$1,200.

Another reason is international parity. While the Berne Convention for the Protection of Literary and Artistic Works has recognised the droit de suite since the 1970s, and Australia is a signatory to the Convention, the right may only be claimed in a signatory country if legislation in that country permits. This rule means that Australian artists are currently unable to claim royalties in other Berne countries that recognise the resale royalty right.

Lobbying for the resale royalty right to be adopted in Australia has been taking place since at least 1989. In 2004 the then Australian Federal Government called for submissions on the issue, but did not pursue the matter.

Not all views of the current reforms are positive. Joshua Gans’ analysis of the economics of the right concludes that the scheme will distort the value of artistic works and will in fact reduce their value:

If I paint a painting and could sell it previously for $2,000 what will I be able to sell it for now. Imagine first that it doesn’t change in value over time. Then the future potential purchasers of the painting will only pay $2000 overall, including the royalty. So the painting’s value to my buyer today will be $1904.76. I’ll get that money today and the rest of the $2,000 when it is re-sold. That might seem like a worse deal but so long as the buyer and I face the same rate of discount we will adjust the asset value for that too.

What if it is expected to appreciate? Now so long as the buyer and I have the same degree of risk aversion (which is doubtful if I am currently starving) then the same neutrality will hold. The expected net present value of my sale with and without re-sale royalties is the same.
But now what if my buyer is going to do things that will actually increase the painting’s value? For instance, display it in a prominent space, take it on exhibition, etc. In this case, their return from that activity has been reduced by the required royalty. That means a lower overall return for me too.

I wouldn’t agree to that sort of thing and that is probably why we don’t see re-sale royalties freely agreed to (that is, there is nothing stopping them being agreed to now). Making it compulsory surely will not help anyone. Hopefully, there is provision for opting out and so we have only changed the default by this action.

Unfortunately, if this analysis is correct, there is clearly no intention to allow artists to opt out from the scheme.