15 Minutes on Mediation of Arts related Disputes


 

I’m . The topic of my presentation is Mediating Arts Related Disputes. Mediation is a creative and powerful dispute resolution process that has become increasingly common in the arts context. This is not surprising, in light of the unique characteristics of mediation. It is the only resolution process whereby the parties remain in control, not only of the outcome but the way in which the outcome is obtained.

Mediation Distinguished

Let’s begin by distinguishing mediation from other forms of dispute resolution.

What is Mediation and How Does It Compare with Arbitration?

Mediation is a private, confidential, informal and non-binding alternative dispute resolution process whereby a neutral third-party assists the parties in resolving their dispute.

Arbitration is similar to mediation in that it is also a private, confidential alternative dispute resolution process. In addition to being more formal than mediation, there is another key difference. In arbitration, a third party neutral (either a sole arbitrator or panel of 3 arbitrators) decides the outcome of the dispute. Arbitral awards are final, that is, non-appealable, and rarely subject to judicial review, unless there has been fraud or other defect in the arbitral process. Compared to mediation, arbitration is often lengthier, more formal, more adversarial, more demanding of the neutral party in terms of time and labor, and therefore more expensive.

How is Mediation Different from Litigation?

Litigation

Litigation is generally something people try to avoid. Not only is litigation expensive, time consuming and emotionally draining, it can destroy long-standing relationships between disputing parties, if not the business itself, as it plays out in public. The court’s decision is public, as well as the pleadings and testimony. As a result, litigation can have a devastating effect on the reputation of the parties. Moreover, the outcome of litigation is unpredictable, since the decision is in the hands of a judge or jury. Courts adjudicate largely in black and white, and are limited in their ability to find creative remedies. One party will generally win and one will lose.

Mediation

How does mediation compare with litigation?The distinctive characteristics of mediation are also its advantages. I will go through several advantages of mediation and discuss how mediation can help parties resolve their dispute.

Control over the Mediation Process

As I mentioned, a unique feature of mediation is that it permits the parties to remain in control. To begin, the parties can select their mediator based on expertise and style and decide what approach makes sense. The parties also determine whether the mediation will be conducted in joint session with all the parties and representatives present, or include private confidential meetings – caucuses – with each side separately.

Mediation is voluntary. Even though participation in mediation may sometimes be court-mandated, the parties are not obliged to agree to anything, and there are no penalties for failing to resolve their dispute. Just as parties can initiate mediation at any stage of the litigation, they can also suspend it at any time and proceed to trial.

At the least, the mediation will have provided an opportunity to narrow the issues and identify the interests at stake.

A mediator can be very effective in simplifying and organizing the case so that it can proceed more efficiently even if it is not resolved during the mediation. As a neutral third party with no stake in the outcome, the mediator can be an effective “agent of reality” by helping the parties to weigh the uncertainty and risks of not settling.

Creative and Durable Solutions

Mediation can foster creative solutions because the parties can take into account real business interests, including non-monetary considerations, and identify impasses to reaching a settlement. Rather than focusing on past conduct, the parties may be motivated to explore new options for mutual gain and search for ways to settle a dispute in which their real interests are not mutually exclusive or truly adverse. By shifting the focus of the discussion away from the “position” or “side” each party has adopted, and instead looking to their needs and objectives, the parties may be able to find “win-win” resolutions.

Moreover, a settlement achieved through mediation may lessen the likelihood of another dispute arising between the parties, while creating a process for them to work through future problems should they arise.

Cost and Time Effectiveness

Mediation is far less expensive than litigation. Often a dispute can be resolved in a single session. By resolving the dispute early in the litigation, or even before a lawsuit has been filed, the parties can save exorbitant sums in court costs, attorneys’ fees, discovery, and other related expenses.

 

Less Stressful and Emotionally Burdensome

Mediation is far less stressful and emotionally burdensome than a trial, which involves publicly reliving an upsetting experience or exposing a negative business decision that gave rise to the dispute in the first place. Resolution of the dispute through mediation, especially at an early stage of the litigation, allows parties to return to their business and personal lives and avoid the disruption of a protracted litigation.

 

Confidentiality

Turning now to the confidential nature of mediation. Whereas litigation is public, mediation is confidential. Parties to a mediation may therefore be open and candid about their concerns and positions in a closed, safe environment. Any statements, proposals, or offers made by the parties are not admissible as evidence in any subsequent arbitral, judicial or other proceeding. There is no public record of what was discussed during mediation sessions. All records, reports or documents received by the mediator while serving in that capacity, as well as the mediator’s notes, are confidential. Confidentiality rules also apply to any other persons attending the mediation.

Because of the confidentiality rules in mediation, some of the adverse side effects of litigation are diminished, such as damage to the parties’ reputation due to media coverage, as well as the time and stress involved in witness preparation, testifying in open court, depositions, and other disruptions. These considerations are often critical in art-related matters. The mediation process provides ample protection from having to reveal confidential information to the other side simply by advising the mediator during the separate caucus. Confidential information may include a party’s honest assessment of the strengths and weaknesses of its own case as well as the party’s final settlement position. The mediator may not repeat a confidential statement to the other side without authorization by the party affected.

Privacy and Opportunity to Listen and Be Heard in a Closed Setting

Since mediation sessions are private, no one other than the parties and their representatives is permitted to attend. The parties are therefore free to express their anger and hurt feelings directly to one another or simply to vent.  They may benefit from hearing the other side’s version of the story, perhaps for the first time face to face, and may be able to identify areas of agreement and disagreement quickly.

The value in having one party listen and respond to the other party’s concerns, or to receive an expression of regret, remorse, or appreciation cannot be overstated. These interests are no less real because they are not strictly monetary or economic. Parties often feel a sense of catharsis after expressing themselves in the presence of a neutral third party—similar to having their “day in court”—and are more willing to resolve their differences, clear up misunderstandings, and search for common ground.

 

Preservation of Relationships

Mediation is especially suitable in situations where the disputing parties have had a long-term personal relationship, or an ongoing business relationship. Close collaborations are prevalent in the art world – for example, between an artist and dealer. If the parties are able to resolve their dispute through mediation, there is real potential that they can preserve their relationship rather than destroy it through litigation. Potential settlement terms may include a joint press release, a non-disparagement agreement, a confidentiality agreement, or a contract for future business.

 

Pre-Mediation Contract

If the parties decide they would like to mediate a dispute, they should enter into pre-mediation contract.  This simple contract should include the following provisions.

  • The mediation should be confidential and non-binding.
  • The parties should agree on who will conduct the mediation and how the mediator will be paid. The mediator’s fee is typically split between the parties.
  • The parties should agree on the length of the mediation. Most mediations are scheduled for either a half-day or a full day.
  • The parties should agree to mediate in good faith until either party reasonably determines that it is fruitless to continue. At that point, they can decide whether to suspend mediation and resume at a later date. Alternatively, they may decide to proceed in court or before an arbitrator or panel of arbitrators.

Mediation may not be appropriate in some cases

Despite the considerable advantages of mediation, it may not be appropriate in some cases. For example, in situations where the parties may wish to establish or follow case precedent, or enforce a judgment against a third party, they will need to go to court. Due to the private and confidential nature of mediation, there would be no public vindication (unless parties agree to publicize). While some mediators may be more evaluative than others, the role of a mediator is not to offer an opinion but rather to facilitate the negotiation. Mediation would not be appropriate in cases involving deliberate bad faith, counterfeiting or piracy.

How does mediation work in practice?

Scenario of an Artist-Gallery Dispute

Let’s consider a hypothetical scenario of an artist-gallery dispute.

Hypothetical Contract Terms

Assume that Artist and Gallery A sign a written consignment agreement with the following terms.

  • Gallery A will have exclusive agency, that is, serve as Artist’s only dealer, for a period of 2 years. They will split the sales proceeds 50/50.
  • Once Gallery A has been paid for the sale of a work, it will remit 50% of the sales proceeds to Artist on a quarterly basis.
  • Gallery A agrees to exhibit Artist in 2 group shows the first year and 2 group shows and 1 solo show the second year.
  • Artist agrees to produce 15 new works of art the first year and 20 the second year.

First Year

During the first year, things are going smoothly. Artist’s works are selling well. The press is favorable. Collectors are interested. Gallery A is prompt about sending 50% of the sales proceeds to Artist quarterly, as required under their agreement.

Second Year

During the second year, however, Gallery A periodically gives advances to Artist totaling $50,000 and uses Artist’s 50% share of the proceeds generated by the sales of his work to repay itself for the advances. Artist abruptly terminates his representation by Gallery A, with $30,000 of the advance payments still outstanding, and decides to work with Gallery B instead. Artist seeks recovery of several paintings delivered to Gallery A on consignment, but Gallery A refuses to return them, asserting a security interest in the works against Artist’s debts. Moreover, 1 of the paintings is missing. Artist sues Gallery A for recovery of the paintings and the fair market value of the missing painting.

Gallery A counterclaims for breach of contract, claiming that Artist violated the terms of their exclusive agreement by entering into a consignment with Gallery B.

 

Comparing Approaches

Litigation

If the case were litigated, the court would look at New York’s Arts and Cultural Affairs Law as well as common law claims, such as breach of fiduciary duty, breach of contract, negligence and fraud. Significant time would be devoted to analyzing the facts and applicable causes of action and commencing a public adversarial proceeding. There would be discovery, itself a very time consuming process, before the court could schedule a hearing or trial. The more valuable the artwork, the more likely the attorneys would require depositions on both sides, as well as testimony from experts, and all the while legal fees would continue to spiral.

As the case proceeded, the public and adversarial nature of the dispute would distract and consume the time of both Artist and Gallery A and tarnish the reputation of the individuals and business involved. Meanwhile, as the controversy wended its way through the legal system (which could take months or even years), Gallery A’s clients might decide to take their affairs elsewhere, bills could go unpaid and employee morale would decline. Artist would also be upset and preoccupied with the uncertainty of litigation. Possibly his relationship with his new gallery would suffer.

Based on these facts, Gallery A would likely be required to return the paintings pursuant to New York’s Arts and Cultural Affairs law and then file a separate lawsuit against Artist to recover the monies owed. There is the missing painting claim to decide as well. As is often the case, neither side would be satisfied with the outcome. An appeal would always be a possibility, causing another round of strain and uncertainty.

Meditation

If this dispute were mediated prior to filing a lawsuit, there would be no public record. The parties would stay focused on their real interests and bring a resolution at a fraction of the cost. The confidential nature of the mediation process would shield the parties from public and media exposure, reputation damage, and disruption of business that necessarily result from the demands and stress of litigation. Gallery A could avoid the embarrassment of losing Artist to another gallery and for losing a painting consigned to it. Artist could avoid the public’s awareness of his finances and breach of an exclusive agreement with Gallery A.

A mediator who is a good facilitator would encourage the parties to consider creative solutions and to generate settlement options. For example, Gallery A might return a painting of equivalent value that it had purchased from Artist. Perhaps Gallery A could share commissions with Gallery B for works purchased by Gallery A’s clients.

Conclusion

Properly conducted, mediation allows parties the opportunity to resolve their dispute quietly and efficiently in terms of time and expense, while taking into account their individual interests and circumstances. Creative solutions, such as the hypothetical agreement between Artist and Gallery A, would simply not be possible in court. Mediation is particularly relevant in the art world context where relationships are complex and discretion is highly prized.

Thank you for your attention.

Further Reading

Judith B. Prowda, Visual Arts and the Law: A Handbook for Professionals (Lund Humphries, London 2013)

Judith B. Prowda, The Art of Resolving Art Disputes: A Case for Mediation, Chapter in All About Appraising: The Definitive Appraisal Handbook (Appraisers Association of America, 2d Ed. 2013)

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15 Minutes on Infringement and Fair Use


 

I’m . This is the second of my two-part talk on Art and Copyright. In Part I, I provided a background on basic copyright principles in the U.S. In Part II, I will discuss copyright infringement and fair use, with a particular focus on appropriation art.

What is copyright infringement?

Copyright infringement occurs when there is an unauthorized exercise of any of the exclusive rights (“bundle of rights”) protected by copyright. As I discussed in Part I of my talk, the copyright owner (in the case of artworks, this is generally the artist), is entitled to a bundle of exclusive rights listed here.

Copyright infringement occurs when one violates any of these rights:

Right to reproduce;

Right to prepare derivative works;

Right to distribute copies;

Right to perform; and Right to display

What is fair use?

The fair use doctrine, which is codified in Section 107 of the 1976 Copyright Act, is an affirmative defense against an action of copyright infringement. Fair use protects secondary creativity as a legitimate concern of copyright. It allows a sort of breathing space for the use of copyrighted material without the copyright owner’s consent in a reasonable manner for certain purposes. Although the statute does not define fair use, the “preamble” of Section 107 of the 1976 Copyright Act recognizes fair use “for purposes such as criticism, comment, news reporting, teaching, scholarship, or research.” These categories serve as a guide and are not a requirement. The inquiry, however, does not end here. A court must still consider the four fair use factors to make a final determination as to whether the use is fair use in light of the underlying purpose of copyright “[t]o promote the Progress of Science and the useful Arts, as set forth in the United States Constitution, Article 1, Section 8, Clause 8.

I’ve listed the factors here, and will discuss them in more detail in a moment:

1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

2. The nature of the copyrighted work;

3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

4. The effect of the use upon the potential market for or value of the copyrighted work.

First Factor

The first fair use factor, purpose and character of the use, considers:

  1. Whether such use is of commercial nature or is for nonprofit educational purposes
  2. Whether the work is transformative (a mere photocopy is not transformative)
  3. Sometimes courts also consider whether the defendant acted in good faith or bad faith.

Influential law review article on Fair Use, by Judge Pierre Leval

In 1990, Judge Pierre Leval published a groundbreaking article in the Harvard Law Review entitled “Toward a Fair Use Standard.” Judge Leval wrote that the first copyright factor looks to whether use “merely repackages or republishes the original,” or whether it “adds value to the original – if the quoted matter is used as raw material, transformed in the creation of new information, new aesthetics, new insights and understandings.” The latter situation “is the very type of activity that the fair use doctrine intends to protect for the enrichment of society.” In Judge Leval’s mind, “Factor One is the soul of fair use.”

Second Factor

The second factor instructs us to consider the nature of the copyrighted work.

  1. One element is whether the work is published or unpublished.

An unpublished work will be subject to a higher degree of protection than a published work, and a defense of fair use is less likely to stand. The Second factor also looks to whether the work is factual or fictional. Factual works are subject to less copyright protection than fictional works (of the imagination).

Third Factor

The third factor – the amount and substantiality of the portion used in relation to the copyrighted work as a whole – looks to the quantitative amount and qualitative value of the original work used in relation to the justification of that use. An allegedly infringing work that copies little of the original is likely to be fair use.

Fourth Factor

The fourth factor – the effect of the use upon the potential market for or value of the copyrighted work – considers:

(a)the extent of market harm caused by the defendant’s actions, and

(b)whether conduct of this sort would have a substantially adverse impact on the potential market for the original. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590 (1994).

Where the allegedly infringing use does not substitute for the original and serves a “different market function,” this factor will weigh in favor of fair use.

Rogers v. Koons

Let’s look at some leading copyright fair use cases. One of the most well-known cases concerning fine art is the 1992 Second Circuit case, Rogers v. Koons. The case involved Koons’s creation of a sculpture (on the right) based on a black and white photograph by Art Rogers (on the left).

In 1986, in the course of preparing for an exhibition at the Sonnabend Gallery in New York on the theme of “Banality,” Koons came across a Museum Graphics reproduction of Rogers’s photograph, “Puppies,” and decided to use that image as a possible reference for a sculpture. The photograph depicted a scene of a couple holding a new litter of eight German Shepard puppies, which Koons found to be “typical, commonplace and familiar” – in other words, banal. Koons tore the copyright notice off the card and sent it to Italy to be copied. He visited the studio and directed the artisans to use the same angles, poses, and expression as in the photograph. He altered the work by making the couple appear vacant, with daisies adorning their hair, and painted the puppies a garish blue color. The polychromed larger than life-size sculpture was fabricated in a limited edition of four, and sold three copies for a total of $367,000.

Rogers brought a copyright infringement action in a New York federal district court against Koons and the Sonnabend Gallery, and won in 1991. On appeal, the Second Circuit upheld the copyright infringement decision and addressed each of the four fair use factors. With respect to the first fair use factor, purpose and character of the use, in addition to arguing that the sculpture was a parody, Koons emphasized that his artistic practice drew upon the movements of Cubism and Dadaism, and was especially influenced by Marcel Duchamp and his incorporation of manufactured objects (ready-mades) into works of art.

While the court acknowledged this artistic tradition, it nevertheless rejected Koons’s parody argument, observing that a parody “must be, at least in part, an object of the parody.” Instead, the court asked “whether the original was copied in good faith to benefit the public or primarily for the commercial interests of the infringer.” In particular, the court noted that Koons’s action in tearing the copyright notice off Rogers’s card suggested “bad faith” and militated against a finding of fair use.

As to the second factor, the nature of the copyrighted work, the court noted that fictional works receive greater protection than factual works. In the court’s view, Rogers’s photograph had more in common with fiction than with a work based on fact, such as a biography or telephone book. It signified an investment of time and effort in anticipation of financial return, a factor that also precluded a finding of fair use.

The third factor, the amount and substantiality of work used, also tilted in favor of Rogers. The court found that “the essence of Rogers’s photograph was copied nearly in toto, much more than would have been necessary even if the sculpture had been a parody of the plaintiff’s work. “In short, it is not really the parody flag that [the defendants] are sailing under, but rather the flag of piracy.”

Finally, on the fourth factor, the effect of the use on the market value of the original, the court stated that this was “the most important, and indeed, central fair use factor.” The Second Circuit found that because Koons’s String of Puppies was “primarily commercial in nature” and sold as “high-priced art,” the likelihood of future harm was presumed as a matter of law. Therefore, weighing the four factors and applying the prevailing fair use analysis at the time, the Second Circuit upheld the copyright infringement decision.

Campbell v. Acuff-Rose Music, Inc.

Two years later, in 1994, the U.S. Supreme Court decided Campbell v. Acuff-Rose Music, Inc., clarifying important guidelines that have since formed a basis of analysis for lower courts deciding fair use cases, including those involving visual art. This landmark case is the Supreme Court’s latest pronouncement on fair use. In Campbell, a rap group, 2 Live Crew, recorded a rap version of Roy Orbison’s 1964 rock ballade, Oh Pretty Woman, after having been denied permission by the copyright holder, Acuff-Rose Music, Inc., to license the work. The resulting rap song, titled Pretty Woman, borrowed from Orbison’s distinctive opening guitar phrase and bass riff, mimicking each line of Orbison’s song, and replacing the original words with raunchy lyrics. In a unanimous decision by Justice Souter, the Supreme Court reversed the Sixth Circuit’s ruling against 2 Live Crew’s commercial parody, holding that parody is a form of “criticism or comment” enumerated in the preamble of Section 107. The Court emphasized that the four fair use factors are to be weighed together, in an equitable rule of reason analysis, “not in isolation from one another, in light of the purposes of copyright.”

In a sharp departure from precedent, the Supreme Court held in Campbell that commercial use is not dispositive of fair use. Campbell was also important in its clarification of the first factor of the fair use analysis (the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes), and recognized that transformative works are the “fair use doctrine’s guarantee of breathing space within the confines of copyright,” drawing from Judge Leval’s 1990 law review article. Addressing the unique issues present in copyright parody for the first time, the Court held that “parody, like other comment and criticism, may claim fair use,” as the central investigation is to see “whether the new work merely supercede[s] the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.” In other words, is the second work transformative?

Blanch v. Koons

Cases decided after Campbell v. Acuff-Rose reflect the Supreme Court’s emphasis on a case-by-case analysis of fair use claims and the interactive nature of fair use factors. In particular, tranformativeness has gained significance in copyright fair use cases, whereas pre-Campbell, the fourth factor, “the effect of the use upon the potential market for or value of the copyrighted work” was given the most weight.

Blanch v. Koons involved the use by Koons of a copyrighted photograph, Silk Sandals, which was taken by professional fashion photographer Andrea Blanch for a spread in the August 2000 issue of Allure magazine. The photograph, which was taken at close range, featured a woman’s lower legs and feet adorned with bronze nail polish and glittery Gucci sandals, resting on a man’s lap in a first-class airplane cabin.

The Second Circuit determined that the goals of the two works were divergent – Blanch’s work was a “shoot” organized by Conde Nast Publications, while Koons’s collage was a work of fine art.

1. The court found that Koons’s work was clearly transformative and relied on Koons’s explanation of the meaning behind his art. Since the work was transformative, the commercial exploitation was deemed less significant.

2. Also, the transformative nature of the work made the second factor, the nature of the work, of “limited usefulness.”

3. Additionally, it reasoned that the amount and substantiality of Koons’s copying – the third factor – was reasonable considering Koons’s use for commentary.

4. Finally, as to the fourth factor, the court found that Koons’s painting had no deleterious effect on the potential market for or value of Blanch’s photo.

While the court in Blanch v. Koons ultimately held that there was a proper fair use defense for the use of the appropriated images, fair use analysis remains ambiguous and uncertain, as demonstrated in Cariou v. Prince, which I will discuss next.

Patrick Cariou v. Richard Prince, Gagosian Gallery, Inc., Lawrence Gagosian

Turning now to Cariou v. Prince. This highly significant case, which settled in March 2014, will no doubt have an impact on artists as well as dealers and exhibitors of art. First, some background. The plaintiff, Patrick Cariou, is a professional photographer who spent over six years photographing Rastafarians in Jamaica. In 2000, he published a book, entitled Yes Rasta that included portraits of Rastafarian individuals and the Jamaican landscape. Richard Prince is a highly successful artist, whose works have been exhibited at a number of museums. He is known for his re-photography of advertising and appropriating images from other artists’ works. From 2005 to 2008, Prince created a series of paintings, 29 of which incorporated partial or whole images from Yes Rasta. To create the series, Prince cut out pages from Cariou’s book, and scanned, enlarged, cropped, and covered them with heavy brush strokes and various other painterly elements.

Prince never sought or received permission from Cariou to use Cariou’s photographs. In some works, Prince used portions of torn pages onto which he had drawn masks “in the style of Picasso” and digitally scanned them directly onto canvas, and affixed collage elements to other images for scanning. The portions of Yes Rasta photographs used and the amount of each Prince artwork they constituted, varied significantly. Here are some examples. Certain of Prince’s works, such as Graduation, were altered but not to the same degree as others. In Djuana Barnes, Natalie Barney, Renee Vivien and Romaine Brooks take over at the Guanahani, for example, the entire photo is used but also “heavily obscured and altered.” From November 8 through December 20, 2008, the Gagosian Gallery in New York put on a show featuring 22 of Prince’s Canal Zone artworks, and published an exhibition catalog, which included reproductions of many of the Canal Zone artworks exhibited and others that were not shown at the Gallery.

Appellate Court Decision

Cariou filed a lawsuit in a New York federal district court, alleging copyright infringement, and Prince and Gagosian moved for summary judgment, asserting a fair use defense. In 2011, the court held in favor of Cariou. On appeal, in April 2013, the Second Circuit reversed in part, vacated in part and remanded, concluding that 25 of Prince’s artworks made fair use of Cariou’s copyrighted photos. The court began its analysis by considering at the purpose of copyright to stimulate the progress in the arts and found that copyright’s goal “would be better served by allowing the use than preventing it.”

First Factor

With regard to the first fair use factor, the Second Circuit chose not to focus on Prince’s explanation of his artwork or whether he was commenting or intending to comment on an original work or on culture. Instead, the court focused on Prince’s artworks themselves and how they might “reasonably be perceived.” Whereas Cariou presented “serene and deliberately composed portraits and landscape photographs depict[ing] the natural beauty of Rastafarians and their surrounding environs,” Prince’s offered “crude and jarring works” that were “hectic and provocative.”

Fourth Factor

Turning next to the fourth factor, the appellate court was concerned “not with whether the use suppresses or even destroys the market for the original work or its potential derivatives, but whether the secondary use usurps the market of the original work.” The court reasoned that the audiences for the two artists were very different. Moreover, there was no evidence that Prince’s work had any impact on Cariou’s work or that Cariou would ever develop or license secondary uses of his work in the vein of Prince’s work.

Second Factor

Concerning the second fair use factor, the court reasoned that while Cariou’s work is creative and published, weighing against fair use, that factor was of limited use where, as here, the secondary use was for a transformative purpose.

Third Factor

Finally, evaluating the third factor, the court found that Prince’s use of Cariou’s work varied from work to work. Here are a few examples of Canal Zone works that the Second Circuit deemed “transformative as a matter of law.”

Five Remanded Works

Five of Prince’s works, however – Graduation, Meditation, Canal Zone (2007), Canal Zone (2008) andCharlie Company – did not differ sufficiently for the Second Circuit to make a determination about their transformative use as a matter of law, and were remanded back to the district court for determination under the proper standard. Judge Wallace (9th Circuit by designation) concurred in part and dissented in part, agreeing with the majority on the law, but finding that the majority should have left the determination for all 30 works to the district court on remand. Moreover, citing precedent, Judge Wallace would have allowed the court to consider Prince’s statements, consisting of “his view of the purpose and effect of each of the individual [p]aintings” – as relevant to the transformativeness.

Further Proceedings

In May 2013, Cariou filed a petition for rehearing, which the Second Circuit denied. Cariou then petitioned the U.S. Supreme Court for certiorari, or discretionary review, hoping that the high court would hear the case. The Supreme Court denied cert. in November 2013. Ultimately, the parties reached a confidential settlement in March 2014 as to the five remanded works.

Conclusion

As the fair use doctrine indicates, and as the Supreme Court and lower courts have recognized, the fair use determination is an open-ended and context-sensitive inquiry. Therefore, it is impossible to predict with any degree of confidence the outcome of an individual case. No doubt one of the greatest challenges in art law in the coming years will be adapting copyright law to protect and encourage creativity in a culture of ever increasing referencing and appropriation.

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15 Minutes on Copyright for Visual Artists & Gallerists


 

I’m I will be giving a 2-part talk on Art and Copyright.

One of the most difficult challenges for courts today is drawing the line between legal appropriation and copyright infringement. This is especially important in today’s digital environment, where the possibilities for artists to appropriate have increased dramatically in recent years.

Part I of my talk will focus on Copyright Basics.

Part II on Copyright Infringement and examples of leading court cases.

The purpose of these presentations is to give you some background on basic copyright principles in the U.S.

First, what is copyright?

Copyright is a form of intellectual property, that is, a creation of the mind, that protects materialized forms of artistic expression for a specified period of time. Copyright applies to works in tangible objects and works in digital form.

How long does copyright last?

The copyright term for works created on or after January 1, 1978 is subject to the 1976 Copyright Act.

For works by a known individual author, the copyright runs form the date of creation, and lasts the life of the author plus 70 years.  17 U.S.C. § 302(a).  The copyright for joint works – that is, works created by two or more authors – lasts the life of the longest living co-author.

If the work is a “work for hire,” copyright lasts the shorter of 95 years from publication or 120 years from creation.  I will not be discussing works for hire in this presentation.

For works created before January 1, 1978, I suggest you consult a chart at www.copyright.cornell.edu.

At

the end of the copyright term, the work is ejected into the public domain and is available for anyone to use without the author’s permission.

What is the public domain?

When a work is no longer protected by copyright.  The copyright has expired.And anyone can use it without any legal repercussion.

Whereas copyright in the U.S. is based on economic incentive, by contrast, copyright law in civil law countries, including Continental Europe, emphasizes authors’ rights and generally affords greater protection to authors, with a strong emphasis on moral rights. Moral rights protect the non-economic and personal aspects of an author’s creation. The artwork embodies the artist’s personality, since the artist, in the process of creation, injects some of his spirit into the art.

Copyright a Constitutional Right

The basis of copyright law in the U.S. is embedded in Article I, section 8, clause 8 of the U.S. Constitution:

The Congress shall have Power … To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

Copyright has an Economic Purpose

The purpose behind copyright in the U.S. is economic. The goal is to motivate people to create works that will enrich the public domain. Copyright does this by giving the creator a sort of monopoly over their works of genius for a limited period of time. This economic quid pro quo gives an author an incentive to create and is at the very core of Anglo-American copyright philosophy. Copyright is perhaps an artist’s most valuable economic right and it persists in a work even after the work is sold. What the artist retains is a bundle of exclusive rights, which I will be discussing in a moment.

Formalities

Until fairly recently, there were a number of formalities that had to be satisfied in order to obtain copyright protection. For example, placement of the word “copyright” or symbol © on a published work; registration with the Copyright Office; and deposit of copies with the Library of Congress. Unpublished works were protected under state law, but not federal law.

Under the 1976 Act, which went into effect January 1, 1978, a work was automatically protected as long as it met the substantive requirements (copyrightable subject matter, originality and fixation). Also, the 1976 Act replaced the dual state/federal system, and now unpublished works were protected as well.

With U.S. accession to the Berne Convention in 1988, notice of copyright became permissive (rather than required) for works created on or after March 1, 1989. However, registration with the Copyright Office is a prerequisite for filing a lawsuit.

Requirements

As I mentioned, under the U.S. Copyright Act of 1976, a work that satisfies the substantive requirements of copyright (copyrightable subject matter, originality, and fixation) automatically receives copyright protection.

Works Protected

In the U.S., copyright protects the following categories of works, as enumerated in Section 102 of the 1976 Act, and further defined in Section 101.  These are:

  • Literary work
  • Musical works, including lyrics
  • Dramatic works, including any accompanying music
  • Pantomimes and choreographic works
  • PICTORIAL, GRAPHIC, AND SCULPTURAL WORKS (the topic of our discussion)
  • Motion pictures and other audiovisual works
  • Sound recordings
  • Architectural works
  • Software

If the work does not fall within any of these categories, it will not be afforded copyright protection.

Pictorial graphic and sculptural works are defined as: two-dimensional and three-dimensional works of fine, graphic, and applied art, photographs, prints and art reproductions, maps, globes, charts, diagrams, models and technical drawings, including architectural plans.

Useful Articles not Protected

They do not include designs of “useful articles” unless the designs are physically or conceptually separable from the utilitarian aspects of the object.

An example of a useful article that was deemed copyrightable is a lamp base. In 1954, the U.S. Supreme Court held in Mazer v. Stein that a decorative mass-produced lamp base could stand alone as a copyrightable work of art and was therefore eligible for copyright protection, notwithstanding that it served a utilitarian purpose as a lamp base.

Artistic elements that are conceptually separable from the utilitarian aspects of the work may also be copyrightable in some cases. Kieselstein-Cord v. Accessories by Pearl, Inc. involved a high-end jeweler’s design of two belt buckles that featured ornate sculptured designs cast in precious metals. The Second Circuit found that the conceptually separable elements were protected under copyright.

Ideas are not Protected

Copyright law protects the expression of an idea, but not the idea itself, no matter how original. No one can copyright the idea of a haystack or even a series of paintings of haystacks at different times of day. What is protected is the artist’s particular rendering of the scene – in other words, the expression. If someone copied the particular details of color, brush strokes, light, shadow, overall perspective, they may have crossed the infringement line.

How close is too close? The challenge of distinguishing between idea and expression is perhaps no more evident than in the case of visual arts. Frequently, the line between idea and expression is subtle and open to interpretation. For example, in Steinberg v. Columbia Pictures, a NY District Court considered Steinberg’s 1975 iconic map of the world representing an “egocentrically myopic perspective” of New Yorkers an idea.

However, certain details of the defendant’s movie poster, including generally “New Yorkish structures” were substantially similar to those in Steinberg’s drawings. Pushing the boundaries even further, the court found that even “style is one ingredient of ‘expression,’” and that the “sketchy, whimsical style” of Steinberg’s map with New York at the center was protectable.There are situations, however, where idea and expression are so intertwined that there is only one, or very few, ways of expressing an idea.  In such cases, the idea and expression are said to merge. To allow copyright protection would essentially grant a monopoly on the idea.

Merger Doctrine

Courts have therefore developed the merger doctrine, which provides that when the idea and expression merge, the expression is not protected by copyright. Courts often apply the merger doctrine when a work is representational of an animal or natural phenomenon.  If a work is lifelike, a copyright protection may prevent others from representing a creation of nature. In Dyer v. Napier, a mother mountain lion carrying a cub in her mouth is an idea first expressed in nature.  Therefore, a photographer’s work to achieve this “ideal pose” was not copyrightable since the pose was one that naturally occurred and was instinctive in nature.

Originality

The second requirement of copyright, after appropriate subject matter,  is originality. In the U.S., originality does not mean novelty.  It simply means that a work was created independently by the author, not copied from someone else. Therefore, if two artists independently produced identical or substantially similar images, both would satisfy the originality requirement.

In one early twentieth century case, the U.S. Supreme Court upheld the copyright in the reproduction of posters of a traveling circus. The Court held that the plaintiffs’ posters were copyrightable, stating, “Others are free to copy the original [subject matter depicted].  They are not free to copy the copy . . . The copy is the personal reaction of an individual upon nature.”

Fixation

In the U.S., there is a third requirement for copyright protection – fixation.  A work must be fixed in a tangible means of expression for a period of more than a transitory duration. How long is that? The copyright statute does not say. Certain artworks, especially conceptual works, may fall outside the purview of copyright protection. What is protected is the physical or digital manifestation of the work.

Bundle of Exclusive Rights

The copyright owner (in the case of artworks, this is generally the artist), is entitled to a bundle of exclusive rights listed here.

  • Right to reproduce
  • Right to prepare derivative works
  • Right to distribute copies (subject to the First Sale Doctrine)
  • Right to perform
  • Right to display (subject to the First Sale Doctrine)

Copyright infringement occurs when one violates any of these rights.

Right to Reproduce

The right to reproduce is perhaps the most basic of the exclusive rights. It is the exclusive right to reproduce the copyrighted work by any means, even within the temporary memory of a computer. This right protects against copying in any medium, including uploading of files to the Internet, and downloading attachments and files and graphics from websites. The reproduction right may apply when works of art are broadcast, even for a few seconds, subject only to a fair use defense.

Right to make Derivative Works

The exclusive right to make derivative works, that is, adaptations, of the copyrighted work is the second of the exclusive rights This right overlaps with the right to reproduce, but is broader because reproduction requires fixation in copies, whereas the preparation of a derivative work, such as a dance or performance, may be an infringement even though nothing is ever fixed in a tangible form. Examples include a photograph of a painting protected by copyright, a translation, or screenplay based on a novel.

Right to Distribute

The right to distribute is the exclusive right to distribute copies of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending. Under this provision, the copyright owner has the right to control the first public release and distribution of an authorized copy – either in physical or digital format.

First Sale Doctrine

However, an important limitation exists under the First Sale Doctrine. The First Sale Doctrine provides that the owner of a particular lawfully made copy or any person authorized by the owner, may, without the authority of the copyright owner, sell, display, or otherwise dispose of the possession of that copy. Once the copyright owner of a particular item has parted with ownership of it, the copyright owner’s right to distribute ceases. Therefore, the purchaser of a painting has the right to resell, donate or otherwise distribute the painting (subject to any contract terms, of course) without the copyright owner’s authorization.

Right to Perform

The right to perform typically applies to musical, dramatic, choreographic, motion pictures, and audiovisual works. It does not usually apply to pictorial, graphic, or sculptural works, although, in theory, it may apply to performance art. The right to display provision is the first explicit statutory recognition in U.S. copyright law of an exclusive right to show a copyrighted work, or an image of it, to the public. “To display” is “to show a copy . . . either directly or by means of a film, slide, television image, or any other device or process.” The right to display is also subject to the First Sale Doctrine limitation. Therefore, a lawful owner of a copy of a work may display it to viewers present in the place where the work is located (for example, a museum or gallery), but not online, without the consent of the copyright owner.

This concludes Art and Copyright, Part I.

Next I will discuss Copyright Infringement and Fair Use, focusing on appropriation art cases.

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Five Art Law Facts that Art Business Professionals Need to Know


In this series of brief overviews, will distill important art law issues that are often overlooked or misunderstood.  Today’s installment will cover the following five topics:  (i) Protection of artists under New York’s amended consignment law; (ii) Commercial laws that protect collectors who buy art from a dealer; (iii) Importance of written contracts; (iv) Statute of limitations for breach of warranty of authenticity; (v) and Conflict of laws concerning ownership of stolen art.

I.  New Precautions Under New York’s Amended Consignment Statute

Dealers doing business in New York are on notice that breach of the New York Arts and Cultural Affairs Law (NYACAL) consignment provisions can now lead to severe penalties, including criminal sanctions.

Effective November 6, 2012, a New York law protects artists and their heirs who consign works of fine art to dealers by strengthening existing trust property and fund provisions of the NYACAL.

The purpose of the consignment laws is to protect artists in cases where a dealer refuses to return an artist’s work or deliver sales proceeds to the artist.  The law also shields artists against claims by the dealer’s creditors, that is, those people to whom the dealer owes money.

Before the law was amended, there was nothing that prevented unscrupulous dealers, such as Salander-O’Reilly (which filed for bankruptcy in 2007), from comingling sales proceeds with their own funds.  The gallery’s creditors attempted to claim the consigned artworks as assets of the bankruptcy estate.  As a result, many clients, including artists’ children, had to buy back their artwork from the bankruptcy estate.

In response to these egregious problems, the law was amended to provide that works of art (and their proceeds) consigned by artists or their heirs to art dealers are deemed property held in “statutory trust.”  As such, the works (and their proceeds) do not become the property of the dealer or the dealer’s.creditors, or subordinate to “claims, liens or security interests” of a dealer’s creditors.  In certain circumstances, the artist may waive the trust fund protection, but the waiver must be clear and conspicuous and in a signed writing.

In addition, dealers are subject to the fiduciary requirements under New York’s Estates, Powers and Trusts Law with respect to consigned works.  These provisions require the dealer to segregate and hold sales proceeds in trust for the artist.  A dealer who violates this provision may be criminally sanctioned and required to pay attorneys’ fees to artists in civil suits.

II.  Commercial Laws Protecting Reasonable Expectations of Buyers

One of the most important questions to ask when purchasing art is whether the work is free and clear of liens or other encumbrances now and in the future.

In the U.S., the Uniform Commercial Code (U.C.C.), enacted in every state including New York, regulates the transfer of art.  Under the U.C.C., purchasers of art acquire all title (that is, ownership rights) to which his transferor had or had power to transfer.  However, two prominent exceptions exist to protect reasonable expectations of buyers: voidable title and entrustment.

Under the voidable title rule, if the original owner has delivered an artwork to a merchant (for example a dealer), who sells the property to a good faith purchaser for value, that purchaser has acquired good title to the artwork, even if it turns out that the transaction was a result of fraud or deceit.  The key is that the original owner voluntarily relinquished possession and intended to transfer title.  For example, suppose A delivers a painting to Dealer to sell to B, who pays with a bad check.  Or Dealer sells to C instead of B.  In either instance, the buyer keeps the work free and clear and A must seek compensation from Dealer.

Similarly, under the entrustment rule, if a person entrusts (voluntarily transfers) possession of an artwork to a merchant (for example, a dealer), and that merchant sells the work to a “buyer in the ordinary course of business,” the buyer can acquire good title (ownership rights) to the artwork.  The entrustment exception applies only to purchasers who are buyers in the ordinary course of business, that is, persons who (i) purchase in good faith, (ii) without knowledge that the sale violates another’s interest, and (iii) in the ordinary course of business from a person (other than a pawnbroker) in the business of selling goods of that kind.

To illustrate entrustment, let’s say A delivers a painting to Dealer, not intending to consign it, but for another purpose, such as to have it restored, framed, or lent to a museum.  Without obtaining A’s permission, Dealer sells the painting to B, a buyer in the ordinary course of business, who is innocent of any wrongdoing.  B can acquire good title to the painting, even though A never intended to sell the painting.

Buyers of art should exercise caution before purchasing significant works of art even when purchasing through a dealer who represents and warrants that the art is free and clear of all liens and will remain so in the future.  Taking precautions, such as checking with the Art Loss Register, searching the U.C.C. databases, and doing a Google search, can often screen for the most likely claims from prior owners, secured creditors, or gifts promised to institutions.

III.  Oral vs. Written Contracts

Since the art world’s culture is based on trust, agreements between artists and dealers are often sealed with a handshake. However, without the benefit of a written document, there is no record of their arrangement, and even a minor problem can sometimes escalate to a major dispute.

Simply put, oral contracts work well until they don’t.  The possibility of misunderstanding over responsibilities and expectations becomes fuel for discord and may cause the relationship to unravel.  An additional consideration is the statute of frauds, which requires that contracts for promises that cannot be fully performed within one year and for sales of goods (not services) of $500 or more be in writing to be enforceable.

The importance of a written contract is illustrated in cases where artists or dealers have tried to enforce terms of an alleged oral agreement.  Because of the statute of frauds and other obstacles, parties to an alleged oral agreement have encountered difficulties in enforcing the agreement’s terms.

An example of an oral contract that went awry concerned an agreement between the legendary American artist Georgia O’Keeffe (1887-1987) and her long-time sales agent Doris Bry, for the return of artworks and photographs by her late husband, photographer Alfred Stieglitz, as well as an accounting of any monies due on sales.  Bry counterclaimed that O’Keeffe had made a number of oral promises, including the promise to make Bry the exclusive sales agent during O’Keeffe’s lifetime and after her death and to appoint Bry as executor of O’Keeffe’s estate.

O’Keeffe sought dismissal of Bry’s counterclaims, alleging they were barred by the statute of frauds.  The court agreed with O’Keeffe, holding that the alleged promises were unenforceable absent a written agreement. O’Keeffe v. Bry, 456 F. Supp. 822 (S.D.N.Y. 1978)

IV.  Statute of Limitations for Breach of Warranty of Authenticity

When a purchaser of an artwork later discovers that the work is not authentic, the statute of limitations under the U.C.C. for a suit against the seller is four years after the breach of authenticity occurs.  (Major auction houses warrant authorship for five years from the date of sale.)

The problem is that few buyers question the authenticity of a work they have acquired until they are preparing to sell it, exhibit it publicly, have it examined by an expert to be included in a catalogue raisonné or for another purpose – which may occur many years after the statute of limitations has expired.  The key question becomes the date that the statute of limitations begins to run – on the date of the seller delivers the work to the buyer, or at the time the buyer discovers the breach of warranty?  In the majority of states, including New York, the breach of warranty begins to run when the seller delivers the work to the purchaser, unless the warranty explicitly extends to “future performance.”

This principle is well illustrated in Rosen v. Spanierman, 894 F.2d 28 (1990), one of the leading cases on warranty of authenticity involving the statute of limitations.  Here, the plaintiffs purchased a painting entitled The Misses Wertheimer from the Spanierman Gallery in New York for $15,000 in 1968.  The gallery provided them with a full warranty on the painting as an original Jean Singer Sargent, and mailed certificates of appraisal for insurance purposes on five occasions between 1975 and 1986.  In 1987, the plaintiffs decided to sell the painting, then valued between $175,000 and $250,000.  Upon consigning the painting to Christie’s, the plaintiffs were informed that it was a fake.

The plaintiffs commenced an action against Spanierman in 1987 for breach of warranty arguing, among other claims, that the repeatedly issued certificates extended the warranty to future performance.  The court rigorously applied the four-year statute of limitations, holding that the warranty did not extend to future performance, and noted that the plaintiffs could have discovered the defect just as easily immediately after the sale as later.  Requiring a purchaser to obtain an appraisal from an expert other than the seller “is not an onerous burden.”

At present, the District Court of Hawaii is the only court in the U.S. to allow a breach of express warranty of authenticity claim beyond the four-year statute of limitations, which tolls the date “until such time as the defect […] was, or reasonably should have been discovered.”  Balog v. Center Art Gallery-Hawaii, Inc., 745 F.Supp. 1556 (D. Haw. 1990).

Therefore, buyers of works of art in the U.S. should assume they must bring any authenticity claim within the four-year limitations period.

V.  Stolen Art

In an increasingly global art market, one of the most problematic areas of concern is whether a collector has unwittingly acquired a work that was previously stolen. Courts have vastly different approaches to disputes over ownership to stolen property, and cases may (and often do) depend on technical defenses available in different jurisdictions.

In the U.S., a basic principle is that a thief cannot pass good title, not even to a good faith purchaser, nor can anyone further down the chain of ownership.  Therefore, a good faith purchaser can be forced to surrender an artwork without any compensation to the original owner, absent a valid defense, such as the expiration of the statute of limitations.

By contrast, the civil codes in most continental European countries are more favorable to good faith purchasers, who may acquire good title to stolen artwork after a prescriptive period, that is, the passage of time, which can be a short period.

Therefore, as art owners and their heirs (including claimants of art looted during the Nazi era) come forward, sometimes after many decades, to claim property from good faith purchasers, courts are confronted with difficult questions that are complicated by choice of law and statutes of limitation, and must decide legal title to the work as between the original owner and heir on one hand, and a good faith purchaser on the other.

Because there is no central registry to record title to art, independently verifying the provenance and including strong representations and warranties from the seller with regard to ownership are imperative.  As mentioned above, Art Loss Register is one prominent database.  Others include the FBI and Interpol.  To be sure that a work was not stolen during the Nazi era, buyers should check databases, such as http://www.lostart.de/Webs/DE/Start/Index.html, http://www.lootedart.com/ and http://www.artrecovery.com/. Another database, http://icom.museum/spoliation.html, provides links to databases of individual countries for the identification and return of looted or stolen Jewish property.  Another way for collectors to reduce risk is to obtain title insurance, which is now available for fine art and other important collectibles.

 

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Judith Prowda on the Artist-Dealer Relationship


Redacted excerpt from ‘s forthcoming book, “Visual Arts and the Law: A Handbook for Professionals” with permission of the publisher Lund Humphries

Artist–Dealer Agreements

Artist–dealer representation agreements are sometimes confused with simple consignment agreements. Each form creates different legal obligations. A consignment agreement ordinarily addresses particular works for a limited transaction (for example, a specific gallery exhibition), whereas an artist–dealer agreement usually includes general provisions that pertain to consigned works and a separate consignment agreement or rider identifying specific works. Thus, an artist–dealer representation agreement is more comprehensive than a simple consignment agreement, and tends to establish the terms and protocols of the business arrangement.

The Dealer’s Fiduciary Duty to the Artist

Whether the parties enter into a simple consignment agreement or an artist–dealer representation agreement, the arrangement involves the entrustment of works by the artist to the dealer, who acts as the artist’s legal agent. The law of agency governs this relationship. As the artist’s agent, the dealer is considered a fiduciary acting on behalf of the artist, who is the principal. Therefore, the dealer is required to act only in the interest of the artist and to forego all personal advantage aside from just compensation. The dealer also owes the artist a duty of loyalty and is obligated to avoid conflicts of interest.

Fiduciary relationships are common in the art market. By law, a fiduciary acts on behalf of the principal. Similar to the dealer, who acts as a fiduciary to an artist he represents, auction houses are fiduciaries to their consignors. Museum directors and trustees act as fiduciaries to their institutions.

Specifically, the law of agency, which governs the fiduciary relationship, requires the dealer to: (i) care for and manage the consigned property prudently; (ii) deal fairly and honestly; (iii) account periodically to the artist as to the dispositions of the property; and (iv) disclose all relevant information to the artist.

Typically, the artist retains title to the work while it is on consignment with the dealer. The work is considered trust property and the proceeds of the sale are considered trust funds belonging to the artist, and must be kept in a separate account. Dealers do not have discretion to use those proceeds for their own purposes, such as, for example, to pay a gallery’s operating expenses. Once a sale is consummated, the dealer will pay the artist an agreed-upon percentage of the sale price and keep the remainder as a commission. Depending on the nature of the agreement with the artist, a dealer may pay the artist advances against future sales.

The dealer’s legal status as fiduciary means that he may not avail himself of any advantage at the expense of the artist, or engage in selfdealing, such as purchasing the artwork for himself, without the consent of the artist. For example, if a dealer purchases a work outright from an artist, without disclosing that he had previously agreed to resell the work to a third-party, the dealer would be in breach of his fiduciary duty and could be liable to the artist for damages resulting from that breach. In contrast, if the dealer is not the artist’s agent and buys work outright from the artist, there is no fiduciary relationship, and hence no breach. However, a dealer who knowingly defrauds an artist could be held criminally liable.
[…]

Artist–Dealer Legislation

The majority of states in the US, as well as the District of Columbia, have passed legislation applicable to the consignment of artworks to dealers by artists, their heirs, and their personal representatives. New York was the first state to enact an art consignment statute, the New York Arts and Cultural Affairs Law (NYACAL), in 1966. In 1975, California followed, using New York’s statute as a model. The purpose behind these laws is to protect artists from the misappropriation of consigned property or sales proceeds. In addition, the law shields artists from unscrupulous dealers who attempt to abdicate their fiduciary responsibilities to the artist by using contractual waivers and disguised purchase agreements that render the relationship one of debtor and creditor. Since criminal intent is difficult to prove, most artists resort to civil proceedings. These statutes apply only to artists who consign their works to dealers, not to collector-consignors in the secondary (resale) market.

These consignment laws impose upon dealers the highest level of fiduciary care under a trusteeship established by operation of law, which covers the artwork and sometimes the sales proceeds held by the dealer in trust for the artist. Thus, a dealer may be strictly liable (that is, regardless of negligence or intent to harm) based on an absolute duty owed to the artist, whether the dealer purchased works outright or sold the works. In either scenario, the dealer does not have the right to his commission until the artist is paid in full for the agreed-upon percentage of the sale. Some states allow the artist to waive such provisions in writing—for example, by permitting installment payments to be divided equally between the dealer and artist. New York permits a limited waiver, excluding the first $2,500 of proceeds received in any 12-month period, starting with the date of the waiver. Other states, such as California, nullify any attempt at a waiver. Therefore, prudent practice dictates that a dealer segregate the artist’s share of the sales proceeds and create a trust account separate from the dealer’s operating account. In 2012, New York Governor Andrew M. Cuomo signed into law a long-awaited amendment to the NYACAL. The amendments sought to strengthen the existing trust property and trust fund provisions of Articles 11 and 12 of the NYACAL and prevent unintended interpretations from interfering with the purpose of these Articles. Effective November 6, 2012, the consignee art merchant became subject to significant new duties and liabilities. Galleries that disregard their obligations under the statute may now be criminally sanctioned, and may be required to pay attorneys’ fees to artists in civil suits.
[…]

Undoubtedly, the most critical aspect of the amended statute is that it explicitly states that the artwork and proceeds are considered property held in a statutory trust and are not, and will not become, the property of the art merchant or the art merchant’s bankruptcy estate. The amended statute also includes a provision specifying that the trust property and trust funds shall not be subordinated to any claim, lien (that is, a legal right or interest a creditor may have in the property), or security interest “of the consignee’s creditors.”

Accordingly, if the gallery consignee is insolvent and sells an artist’s work, neither the gallery nor the gallery’s creditors can legally touch the artist’s share of sales proceeds, which are held in a trust for the artist. Both the consigned artwork and proceeds held in the trust are beyond the reach of the gallery and the gallery’s creditors. New York’s amended artist consignment protects artists by making it difficult to waive their rights under the statute prospectively, and fortifies the law’s provisions on trust property by including civil enforcement and criminal penalty provisions. Furthermore, the amendments clarify the dealer’s fiduciary obligations to the artist and increase the artist’s awareness of her rights. Finally, the amended statute’s Section 3 further specifies that an artist may seek injunctive relief, recover actual damages and reasonable attorneys’ fees if the artist is successful in an action against the gallery for breach of fiduciary duty.

© Judith Prowda 2013

Artist-Dealer Excerpt

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