Close v. Sotheby's, Inc.

• Decision Date: 06 July 2018
• Docket Number: No. 16-56234, No. 16-56252, No. 16-56235,16-56234
• Citation: 894 F.3d 1061
• Parties: Chuck CLOSE; Laddie John Dill, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. SOTHEBY'S, INC., a New York corporation, Defendant-Appellee. The Sam Francis Foundation; Chuck Close, individually and on behalf of all others similarly situated; Laddie John Dill, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. Christie's, Inc., a New York corporation, Defendant-Appellee. The Sam Francis Foundation; Chuck Close, individually and on behalf of all others similarly situated; Laddie John Dill, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. ebay Inc., a Delaware corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

894 F.3d 1061

Chuck CLOSE; Laddie John Dill, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,

v.SOTHEBY'S, INC., a New York corporation, Defendant-Appellee.

The Sam Francis Foundation; Chuck Close, individually and on behalf of all others similarly situated; Laddie John Dill, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,

v.Christie's, Inc., a New York corporation, Defendant-Appellee.

The Sam Francis Foundation; Chuck Close, individually and on behalf of all others similarly situated; Laddie John Dill, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,

v.ebay Inc., a Delaware corporation, Defendant-Appellee.

No. 16-56234

No. 16-56235

No. 16-56252

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 10, 2018 Pasadena, California

Filed July 6, 2018

Michael A. Bowse (argued), Ira Bibbero, and Eric M. George, Browne George Ross LLP, Los Angeles, California, for Plaintiffs-Appellants.

Angela Dunning (argued) and John C. Dwyer, Cooley LLP, Palo Alto, California, for Defendant-Appellee eBay Inc.

Deanne E. Maynard (argued), Morrison & Foerster LLP, Washington, D.C.; Paul T. Friedman, Morrison & Foerster LLP, San Francisco, California; Howard B. Comet and Steven A. Reiss, Weil Gotshal & Manges LLP, New York, New York; for Defendant-Appellee Sotheby's Inc.

Adam K. Lloyd, Matthew E. Delgado, Hillary A. Hamilton, and Jason D. Russell, Meagher & Flom LLP, Los Angeles, California, for Defendant-Appellee Christie's Inc.

Steven A. Hirsch, Keker Van Nest & Peters LLP, San Francisco California; John J. Davis Jr., McCracken Stemerman, San Francisco, California; for Amici Curiae California Lawyers for the Arts and Peter Alexander.

Before: Danny J. Boggs,^* Jay S. Bybee, and Paul J. Watford, Circuit Judges.

BYBEE, Circuit Judge:

The California Resale Royalties Act ("CRRA") grants artists an unwaivable right to 5% of the proceeds on any resale of their artwork under specified circumstances. To that end, the CRRA requires the seller of the artwork or the seller's agent to withhold 5% of the resale price and pay it to the artist or, if the artist cannot be found, to the California Arts Council. If the seller or the seller's agent fails to pay the 5% resale royalty, the artist may bring an action for damages.

Plaintiffs are artists and their successors in interest seeking resale royalties under the CRRA from the statute's effective date of January 1, 1977, to the present. The issue in this case is whether plaintiffs' claims are preempted by federal copyright law. The district court held that they are, as a matter of both express and conflict preemption.

We affirm in part and reverse in part. Plaintiffs' CRRA claims covered by the 1976 Copyright Act—i.e., those concerning sales postdating the 1976 Act's effective date of January 1, 1978—are expressly preempted by 17 U.S.C. § 301(a). We therefore affirm dismissal of those claims.

The 1909 Copyright Act, however, has no express preemption provision. As such, plaintiffs' CRRA claims covered only by the 1909 Act—i.e., those concerning sales that occurred between the CRRA's effective date of January 1, 1977, and the 1976 Act's effective date of January 1, 1978—cannot be expressly preempted. Nor are they preempted by conflict preemption. See Morseburg v. Balyon , 621 F.2d 972, 977–78 (9th Cir. 1980). Accordingly, we reverse dismissal of those claims and remand them to the district court for further proceedings.

I. LEGAL AND FACTUAL BACKGROUND

A. The Droit de Suite

Many nations recognize the droit de suite ,¹ under which artists receive a royalty each time the original, tangible embodiment of their work is resold. The practice was first recognized in France in 1920 and then adopted in other civil-law jurisdictions. More recently, a number of common-law jurisdictions have adopted some form of the droit de suite . In those countries that recognize it, the droit de suite is considered a moral right, albeit one with economic value. See generally U.S. Copyright Office, Droit de Suite: The Artist's Resale Royalty (Dec. 1992) ("1992 Copyright Report"); U.S. Copyright Office, Resale Royalties: An Updated Analysis (Dec. 2013) ("2013 Copyright Report"); 2 MELVILLE B. NIMMER & DAVID NIMMER , NIMMER ON COPYRIGHT §§ 8C.04[A][1] & n.3 (rev. ed. 2017) (" NIMMER ").²

The droit de suite protects visual artists, who face particular difficulty in capitalizing on their work. Literary and recording artists can generally profit from their efforts by controlling the reproduction of books or music. For visual artists such as painters and sculptors, however, the right to control reproduction is often not their principal source of income. Rather, it is often the sale of their original work that allows them to make a profit. The droit de suite gives these artists an economic interest in subsequent sales of their original work, thereby allowing them to capture some of its appreciation in value after the first sale.

The droit de suite also appears in international copyright law. Since 1948, the Berne Convention has recognized that artists possess an "inalienable right to an interest in any sale of the work subsequent to the first transfer by the author of the work." Berne Convention for the Protection of Literary and Artistic Works art. 14ter (1), Sept. 9, 1886, as amended Sept. 28, 1979, S. Treaty Doc. No. 99-27 (1986). Nevertheless, the Berne Convention does not obligate its signatories to adopt the droit de suite . Instead, the Berne Convention makes the recognition of such rights optional, but rewards such recognition with reciprocity: countries recognizing the right will protect the right of each others' artists. See Lee D. Neumann, The Berne Convention and Droit De Suite Legislation in the United States: Domestic and International Consequences of Federal Incorporation of State Law for Treaty Implementation , 16 COLUM. -VLA J.L. & ARTS 157, 159 (1992).

The United States became a signatory to the Berne Convention in 1989, but to date, it has not adopted the droit de suite . As early as the 1970s, Congress considered adopting the droit de suite as part of U.S. copyright law, but those efforts have never proved successful. A droit de suite provision made its way into an early version of the Visual Artists Rights Act of 1990 ("VARA"), but was removed from the bill that Congress ultimately enacted. Compare S. 1619, 100th Cong., 1st Sess. (1987), with VARA, Pub. L. No. 101-650, §§ 601–10, 104 Stat. 5089 (1990). Instead, VARA directed the Copyright Office to conduct a study on the feasibility of implementing such a right in the United States. VARA § 608(b).

In 1992, the Copyright Office issued an extensive report concluding that there was insufficient economic or copyright-policy justification to adopt the droit de suite in the United States. See generally 1992 Copyright Report. The report recommended that "[g]iven potential problems of preemption, enforcement, and multiple application, any droit de suite that is enacted in the United States should be at the federal level." Id. at vi; see also id. at 77–86. Two decades later, members of Congress requested that the Copyright Office revisit the issue, and the Copyright Office issued a second report. See generally 2013 Copyright Report. This time, in light of "the adoption of resale royalty laws by more than thirty additional countries since the Office's prior report," the Copyright Office endorsed "implementation of a resale royalty right in the United States ... as one alternative to address the disparity in treatment of artists under the copyright law." Id. at 1, 3. Congress has not acted on the Copyright Office's recommendation.

B. The California Resale Royalties Act of 1976 ("CRRA")

The CRRA is "the first, and thus far only, American recognition of the droit de suite ." NIMMER § 8C.04[B]. Under the CRRA, the seller of "a work of fine art"³ or the seller's agent must withhold 5% of the sale price and pay it to the artist. Cal. Civ. Code § 986(a). If the seller or agent is unable to locate and pay the artist within 90 days, the 5% royalty goes to the California Arts Council. Id. § 986(a)(2). In that event, the California Arts Council must attempt to locate and pay the artist. Id. § 986(a)(5). If the artist has not been located after seven years, the Council may then use the funds to acquire fine art for public buildings. Id. If the seller or agent fails to pay the 5% royalty, the artist may bring an action for damages and attorneys' fees. Id. § 986(a)(3). Notably, the artist's right to the 5% royalty may not be waived or reduced by contract. Id. § 986(a).

As originally enacted, the CRRA applied to sales of fine art in California or by a California seller (whether inside California or not). Id. But, as discussed in greater detail below, we have since limited the statute to regulate only sales in California. Sam Francis Found. v. Christies, Inc. , 784 F.3d 1320, 1322 (9th Cir. 2015) (en banc). Other conditions to the CRRA's application include, inter alia, that the artist must be a citizen of the United States or resident of California; the sale must occur after the initial sale by the artist (i.e., it must be a resale); the sale must be for $1,000 or more; the sale cannot be for less than the purchase price paid by the seller; and the sale must occur during the artist's life or within 20 years of his death. Cal. Civ. Code § 986(a) – (c).⁴

In 1977, art dealer Howard Morseburg sold two paintings under circumstances requiring him to pay royalties under the CRRA. Morseburg , 621 F.2d at 974–75. He then brought suit to challenge the California law on multiple grounds, including that it conflicted with the 1909 Copyright Act. Id. To resolve this conflict preemption question, we relied on the Supreme Court's decision in Goldstein v. California , 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163 (1973). Id. at 977. Goldstein held that a California statute making it a criminal offense...