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.

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  1. Nanno says:

    It indeed does sound fair to give a resale-royalty cut to the artist of a fine-art piece in case the value has risen. And yes this more often applies to the already successful ones but also gives ‘young’ artists incentives to sell their fine-art to collectors but especially traders/galleries for less, knowing they’ll get a cut once they’ve made a name for themselves.

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  2. Mayuresh Gaikwad says:

    What happens if the art is sold later for a loss to the collector? Does the artist pay 5% of the loss back to the collector?

    Also, is the artist entitled to 5% profits of every subsequent transaction or just from the collector whom the artist sold to?

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    • Nanno says:

      “Under the California law, no payment is due if the price drops.”

      It’s in the NYT article, forth paragraph)

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    • Enter your name... says:

      I believe the answers are:

      No one pays if the price goes down, or if the sale price is less than $1,000.

      The artist (and his estate) is entitled to 5% of the profits (not sale price) every time the piece is sold (assuming the piece is sold in California or by a California resident).

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      • Grog says:

        The California Resale Royalty Act provides that, with a few exceptions, the seller must pay the artist (or, in some cases, a deceased artist’s estate) five percent of that resale price.

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      • Mike B says:

        I love how giving money to an artist’s ESTATE will somehow help said artist. I guess California is somehow trying to solve the problem of poor zombie artists being a drain on state social welfare resources.

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  3. Winston says:

    Given the size of California’s economy, and how poorly integrated the state is with the rest of the U.S. it seems reasonable to talk about how both the U.S. and California would be better off were California an independent country. For example, an independent California with its own currency would be much less prone to the boom and bust cycles that typify the state’s economy (we always forget the booms during the busts and vice verse). Further, many of California’s laws, from drug decriminalization to carbon trading, have much more in common with the other developed nations of the world than they do with the United States which looks more and more “exceptional” every day.

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  4. Tom says:

    So if I build a really, really nice house – call it a “masterpiece” of a house – do I get 5% of the sale price on every sale after that?

    If I make an artistic wonder of a bicycle do I get 5% when someone resells it? Cars? Toasters? Shoes? Clothing?

    Sorry this is just silly.

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    • Grog says:

      Sorry, no. Here’s one of the requirements from Nanno’s link:

      - The work is an original painting, drawing, sculpture or original work of art in glass.

      So a very traditional and limited definition of art.

      The idea is to track value of a product that doesn’t get consumed when used, but an initial purchaser could be done consuming it. An alternate approach to this would be for the artist to make additional prints, copies, etc of the piece of art, creating competition for the current owner and reducing the re-sale value.

      Would we rather allow an artist to collect re-sale royalties or have them flood the market with additional copies?

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      • Tom says:

        Flood the market with additional copies. That is what other craftsman that make artistic goods need to do to make a living.

        Sorry but an “artist” that works in paint, or glass is no different than a carpenter, metalworker, or other craftsman. They shouldn’t get a cut after they sell their product the first time.

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  5. Matthew says:

    I’m no expert with these sorts of things but it seems akin to royalties paid to song writers or screen writers – they get money up front plus a cut along the way if their song/play/sit-com is popular. If it’s a dud, no pay day. I guess the difference is that it’s history and convention that have established song writer compensation rather than state law. I think you can make some case that in our society creative works are viewed differently than selling a used car or a house and as a result we’ve created a different set of norms for their sale.

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  6. Grog says:

    To me this would make sense when applying to intellectual property and secondary markets. As the re-sale of a used things like books, software, video games, etc. does not result in financial support of the creator.

    The whole concept is a comparison of First Sale Doctrine and Droit de Suite.

    Our current system has resulted in some interesting behavior by developers and publishers of video games that some see as protecting their investment and others see as anti-consumer behavior. (see project ten dollar from EA)

    BTW, I’d love to see freakonomics analysis of the things the game industry is working with.

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  7. Saru says:

    Maybe I’m too cynical, but isn’t this a way for California to collect more taxes (i.e., on the artist’s end)? No doubt they need the money.

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  8. Mike B says:

    When I saw that article come out I suspected it would get picked up by the Freakonomics gang and I was not disappointed. I can’t do a better job explaining the ways this law is both counterproductive and unfair, but my first thought is to wonder if there can’t be some way that an artist can’t simply also sell his rights to the “residuals” at time of purchase. IE I buy your art AND the implicit lottery ticket that goes with it so that if I sell the art for a profit the %5 comes back to me. Better yet I could then sell the rights to the %5 to other people or even package them into some sort of security that can then be cold to investors. It just sounds that without massive state intervention in the ability of one party to contract with another, transfer of the residual rights could become a standard part of all art purchases…like buying the copyright to the photos when you hire a photographer instead of just the physical representations

    Second I believe that while cloaked in some mask of “morality” and “fairness”, the reason for this policy in Europe is rooted in the concept of the Idle Class, although strangely in this it seems to be pitting one faction of the Idle Class against the other. We don’t have a real class system in the US so its hard to wrap our heads around the idea of a large group of people who are entitled to all sorts of wealth and power because one of their ancestors was able to seize control of a plot of land. The “job” of this aristocratic class is to basically spend their money on things such as large stone buildings, supercars and works of art. As the non-working landed classes were the original patrons of non-religious art there is still a strong concept that the wealthy are the consumers of art, so therefore on one side of it this is a tax against those “idle” classes.

    However on the other side of it there is a strong trend in many parts of Europe to treat artists as some special class, worthy of all kinds of state protection so they can do their great work free from the corrupting influences of commercial influence. As I said it all goes back to the patron system where some land owner would support great artists. Copyright and IP is a market based approach that does away with the need for patrons, but Europe (or more specifically France) has never been able to get past the notion that the only way to get truly great art is to keep it away from the banal actions of supply and demand. This tax is simply trying to recreate the effect of the sort of lifetime artistic employment the Nobles used to provide. You have a group of people whose one job is to sit around and appreciate art in a symbiotic relationship with another group whose sole job is to sit around and create art. The “great” artists are the ones the state is actually concerned with and again, those are the people who benefit from it. After all its the great artistic icons that give Europe its cultural gravitas.

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