Auction houses have reason to cheer in the wake of a local federal judge’s ruling last month gutting the California Resale Royalty Act, the only law in the United States granting artists a cut from the sale of their work on the secondary market.

The demise of the CRRA, which allowed artists to collect a 5 percent royalty from any secondary sale of their work in the state worth more than $1,000, could spur growth in California’s art market, according to legal insiders.

“Had it been upheld as valid, the CRRA would have continued to keep sales out of California,” said Steven Thomas, a partner at law firm Irell & Manella in Century City.

Major auction houses such as Christie’s and Sotheby’s rarely hold auctions in California due in part to the law.

“It going away will alleviate some of the concerns about doing deals in the state,” Thomas said.

The statute was first undercut a year ago by a federal appellate court ruling that found the California law’s application to out-of-state art sales was unconstitutional. Then last month a trial court threw out the underlying case entirely on the grounds that the CRRA violated federal copyright law.

The plaintiffs in the case, including Chuck Close and Venice-based artist Laddie John Dill, among others, have asked U.S. District Court Judge Michael Fitzgerald to reconsider his April 11 ruling. The artists filed the class-action suit in October 2011 in L.A. federal court alleging Christie’s, Sotheby’s, and eBay Inc. all owed them royalties under the law.

If Fitzgerald doesn’t change his ruling, the plaintiffs’ lawyers have said they will appeal the ruling to the Ninth Circuit Court of Appeals, the same body that already found part of the law unconstitutional.

Thomas said the immediate impact on the art market in California would likely be relatively minor – especially when it comes to Christie’s and Sotheby’s – but over time there could be a return of some bigger events to the state, assuming Fitzgerald’s ruling is upheld.

“It will be interesting to see whether Christie’s or Sotheby’s will reinvigorate their auction presence out here in L.A.,” Thomas said. “It’s definitely one – but not the only – reason they don’t do auctions out here.”

Christie’s declined to comment citing the pending litigation.

Sotheby’s did not respond to requests for comment.

Best intentions

The CRRA was passed in 1976 in the wake of protests by artists such as Robert Rauschenberg, who famously confronted collector and New York taxi magnate Robert Scull at a 1973 Sotheby’s auction where a piece by the artist sold for nearly 10 times the original purchase price. The passage of California’s resale royalty law three years later was hailed as a victory for artists in the hope that it would insulate them from art market profiteering to some degree. The statute also allowed California resident artists to collect a 5 percent royalty on secondary sales outside the state.

While no comprehensive statistics about royalties paid to artists under the act are available, art world insiders agree that the law has been enforced with limited success. The California Arts Council, which collects royalty payments if an artist cannot be found and tallies those collections, said it took in only $339,000 from 664 different transactions between 1978 and 2012.

Caitlin Fitzwater, a spokeswoman for the council, said the state organization stopped collecting funds in 2012 and wouldn’t say whether it endorses the law.

“Right now, the California Arts Council takes no position on the CRRA litigation,” she said. “Generally, our mission is to support artists in California and we do that through a variety of programs, including making sure they are paid fairly through the (organization’s) artist grant program.”

Thomas said most legal minds in the art world agree the statute has flaws, but because most disputes involving resale royalties were settled quickly out of court, there hasn’t been any precedent-setting decision since 1980.

“It’s like, OK, finally!” he said. “Everyone who does this says it is a ridiculous law because it’s a clear violation of both the Commerce Clause and the Copyright Act of 1976.”

While there have been repeated attempts to enshrine similar legislation at the national level, none has come to fruition. Such a law would put the United States on par with the European Union, which has a 4 percent royalty agreement in place for all member countries. Even plaintiffs’ lawyers in the case agree that if their appeals are unsuccessful, new federal legislation would be the only recourse.

“Either there would have to be a national resale royalty law adopted by Congress or an amendment made to the Copyright Act,” said Michael Bowse, a partner at Browne George Ross in Century City, representing Close, Dill, and the others.

Thomas said the overall merit of paying royalty fees to artists shouldn’t be tied to demise of California’s particular law.

“It is totally separate,” he said, “from whether the concept that artists should be paid a royalty is fair or not.”

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