Artist Profit-Sharing: Another Example of How California Is Like Europe

Photo: furnstein

How is California more like Europe than the United States? We can think of a few ways, but one of the most interesting involves the rights of artists.

As this recent New York Times article points out, in 1976 California passed a law that guarantees artists 5 percent of the profits in a later sale of their artwork. In doing so, California copied France and a number of other nations, in which such profit-sharing with artists is required by law. In the rest of the U.S., by contrast, artists have no right to the profits a collector might make when the work is resold.

From an economic point of view, the California rule is a little strange. As we discussed in a previous post, if I sell my house, and in five years it rises substantially in value (an anachronistic example these days, we recognize), I don’t get a cut of the windfall. A deal is a deal. Likewise with stocks, fine wine, gold, cars, used clothing, Aunt Mabel’s quilt or pretty much anything else you can think of.

The California rule strikes some people as more fair to artists. But the likely economic effects make it seem to us unfair. If the California rule applies, buyers of art can expect, on average, to make lower profits when they resell. As a consequence, they are likely to offer less in the initial transaction. And sellers likewise ought to be more willing to accept less, because they know that if a work later proves valuable, they get a slice—and given the occasionally astronomic price changes of fine art, a 5 percent cut of the resale price can dwarf the initial sales price.

As this suggests, in practice the California rule (if enforced, which it rarely is) enriches only the fortunate few who actually see their work gain substantial value. Let’s call them the “1 percent.” The 99 percent get little to nothing, since their art either drops in price or rises only slightly. The right to 5 percent of a later sale, in short, is like a lottery ticket—and like lottery tickets, the vast majority of ticket holders walk away empty-handed. The most successful artists are the last ones in need of aid, but the net effect of the California resale provision is to transfer wealth from unsuccessful (the lottery losers) to successful artists (the lottery winners). Sound like a familiar theme?

For these reasons the U.S. Copyright Office has resisted adopting the California rule for the nation as a whole. So why does California—and starting in 2012, the entire European Union—insist on treating art this way?

In Europe, intellectual property rights, to which this right is closely connected, are often understood not as instrumentalist tools of policymaking but as rights grounded in morality. Through a moral lens, it may seem fair that artists enjoy some of the windfall from their works that would otherwise accrue to (often wealthy) collectors. And in other ways as well, artists are granted rights over the future use of their work, which has the effect of connecting them, over the long-term, to art that they otherwise sold. For example, some European countries give artists the right to have their names associated with their work, even after they’ve sold it.  Some countries also give artists the right to prevent destruction or alteration of their work by buyers.

The American tradition is different: it is more incentive-based and instrumentalist, except for a very narrow provision in federal copyright law that gives limited “moral” rights to a small number of works of fine art. Which raises the issue we began with: why is California more like Europe? We don’t know for sure. But we don’t think it is because Californians have an especially European sense of moral rights concerning art.

California is, however, the home of many people who make their money from creative works, and the California legislature has often stepped in to protect their ability to profit off of their creativity. For example, California has a well-developed “right of publicity” that gives living and dead people alike (in the latter case, through their heirs) the right to control commercial use of his or her likeness, name, image or identity. In an infamous case brought under this law in 2004, former California Governor Arnold Schwarzenegger sued the maker of a bobblehead doll in which he was portrayed in a business suit but brandishing an assault rifle.

The Schwarzenegger bobblehead case eventually settled, and so the only thing it established for sure is that the Governator lacks a sense of humor. Nonetheless, it shows the lengths to which California is prepared to go to defend the rights of rich celebrities to become richer. Perhaps against this backdrop, a law mandating a 5 percent slice of any profits from artworks seemed reasonable.