The Rise of NYC Art Fairs – NYSBA Event – Part 1


Are brick and mortar art galleries the loss leaders in an art world, potentially spiraling beyond viable limits? More than ninety art fairs now define the rhythm of globalized art business. This development has profoundly altered the relationships amongst artists, gallerists, and collectors.

This panel discussion explores and critiques the impacts and challenges – legal, ethical and business – of the rise of art fairs. This is part of an initiative to create dialogue amongst lawyers, artists and emerging and established art professionals working in the primary or secondary markets.

Moderator: , Chair, Committee on Fine Arts, New York State Bar Association, Entertainment, Arts and Sports Law (EASL) Section, Attorney and Faculty at Sotheby’s Institute of Art

Panel:
, Gallerist
Elizabeth Dee, Gallerist
, Attorney at Stropheus Art Law
, Litigation Partner at Sullivan & Worcester LLP

A video of Ed Winkleman’s PowerPoint presentation can be found in the section on his presentation below. A dedicated audio recording of Elizabeth Dee’s comments also precedes her text.

Judith B. Prowda


 

New York Art Law Attorney Judith B. Prowda More than 90 art fairs define the rhythm of globalized art business. There are dozens of NYC art fairs. In fact, when Richard and I were planning this program we made the strategic decision to schedule it between Frieze NY, and Art Basel in Switzerland. With the rise and rise of art fairs, sheer survival in the commercial art context now requires galleries to participate in a half a dozen or more art fairs a year – from New York to Maastricht to Dubai to Hong Kong to São Paolo – with stops along the way.

Some dealers make as much as two-thirds of their sale at fairs. Art fairs have indeed transformed the business of art and even the production of contemporary art. For serious collectors the international art fair circuit is an imperative, while visiting only a few of galleries in NY, London and Berlin seems – well – almost quaint. I recall arriving a few minutes before the opening at The Euro¬pean Fine Arts Fair (TEFAF) in Maastricht and being crushed by a crowd of eager collectors who gathered impatiently for the doors to burst open at 11AM on the dot. And TEFAF is perhaps the most subdued of fairs.

On the positive side, art fairs create a global art dialogue; galleries introduce works fresh from artists studios to the international stage. For the past three years Frieze has commissioned artists projects that have been curated by Cecelia Alemani. Frieze also offers a daily program of keynote lectures, panel debates, and discussions on diverse cultural topics. And let’s not forget the glitzy parties.

Fairs have also been criticized. Participation in an art fair is a very expensive proposition – from a highly selective application process, to fees for booths shipping, insurance and travel. Mid-tier galleries which can’t afford these costs are often left at the gate. Increasingly they are confronted with the financial unsustainability of their brick and mortar.

Also – and I leave this to our gallerists to address – is the question of art production and the responsibility of dealers who may have to pressure artists to turn out a high volume of new work in order to satisfy the demand¬ing art fair calendar.

Along with the rise of art fairs, is the emergence of complex legal and ethical issues. For example, and these are but a few on the legal side – how are relationships among the relevant actors distinct from traditional dealing? How are negotiations affected? When is the handshake deal an enforceable contract? When isn’t it? What about warranties of title and authenticity? Whose jurisdiction laws apply in title disputes if a work is stolen? That of the consigner, or the good faith purchaser, or the country from where the object was stolen? Suppose a work was shipped or looted abroad without an export license? Or it turns out to be a fake, or is seized by the bank as collateral on a loan? What are the consequences?These are but a few of the legal issues.

And there are ethical concerns as well. How are conflicts of interest addressed when dealers are evaluating other dealers in the application process? Are decisions about gallery placements at the fair – fair? Are rising costs making it impossible for some dealers to compete? How are a dealer’s fiduciary duties to their artist affected?

To parse all this out, we will begin with Ed Winkleman. Ed is co-owner of Winkleman Gallery and also co-founder of the Moving Image Art Fair. He is the author of the eponymous blog that demystifies the gallery system, and the book, How to Start and Run a Commercial Art Gallery, published in 2009. Ed will offer an overview of the research on art fairs he is conducting, in preparation for his upcoming book, Selling Contemporary art: How to Navigate the Evolving Market.

Our next speaker is Elisabeth Dee. Elisabeth is the owner of the Chelsea gallery, Elizabeth Dee, and is the co-founder of the art fair, Independent New York. She has produced a number of groundbreaking, first and international exhibitions of an impressive roster of artists. She was also included in Art + Auction Magazine’s list for the 100 most powerful figures in the art world. Elizabeth will report on the chances and risks that art fairs impose from her perspective as a dealer and a founder of an art fair.

Our next speaker is attorney Richard Lehun. Richard is one of the founding members of Stropheus Art Law, one of New York’s pioneers in the provision of unbundled legal and business services to artists, gallerists, collectors and museums. Richard is one of the few people in the US to have completed a doctorate in fiduciary law cross-appointed between McGill and Harvard Law School, and is responsible for gallery, museum and auction house ethics and fiduciary duties at Stropheus Art Law. He’ll be looking at the ethical problems that fairs raise and how their potential is impacted.

Our final speaker is Nick O’Donnell. Nick is a litigation lawyer at Sullivan & Worcester LLP and the practice group leader of the firm’s art and museum group. He has spoken frequently on the topic of WWII restitution litigation, including at a conference in Heidelberg last January about the Cornelius Gurlitt affair. Nick’s widely read art law report offers commentary on legal issues affecting visual artists – the visual arts community. Nick will present on legal issues that art fairs carry with them.

I’m grate­ful for my employer, Sotheby’s Insti­tute of Art, for gra­ciously host­ing this event, as so many New York State Bar Association, Entertainment, Arts and Sports Law (EASL) Section, events, in this beau­ti­ful space which is my sec­ond home. This pro­gram is part of an ini­tia­tive of EASL’s Fine Arts Com­mit­tee to cre­ate dia­logue amongst lawyers, artists, and emerg­ing and estab­lished art pro­fes­sion­als work­ing in the pri­mary and sec­ondary mar­ket. Two years ago we pio­neered a pro­gram on legal issues for artists and gal­leries dur­ing Bush­wick Open Stu­dios Week­end, geared to the pri­mary art com­mu­nity. Last Octo­ber we held a pro­gram on Gallery Ethics and have posted an audio pod­cast and tran­script of that pro­gram on the Stro­pheus Art Law web­site, and we will do the same for tonight’s program.

So please join me in welcoming our illustrious panel and our first speaker, Ed Winkleman.

Ed Winkleman


 

New York Gallerist Ed WinklemanGood evening everyone. I would first like to start off by saying thank you to Judith and Richard for organizing this panel and what I’m going to share with you, as the previous thing mentioned, is just some of the research from my upcoming book. Its title is self explanatory, but in the context of what we’re talking about today – going further and say it really does focus on contemporary art, but the discussion today will extend beyond just that. The book is designed to help dealers strategize with the changes of in the art markets since I wrote the first book, which was about the fundamentals of opening and running a commercial art gallery. One chapter in particular that defines a big part about what has changed since 2008, when I wrote the first book, is the chapter: The Rise of the Art Fair. I’ve read a lot of the literature as well as interviewed some of the directors of major art fairs in the world as preparation for the book, and this part is what I am going to share right now.

Since 2002, despite the quote you’ll see at the top sup­plied by Georgina Adams, the num­ber of art fairs in the world has exploded, and there’s a num­ber of quotes through­out the pre­sen­ta­tion that I won’t read out, because they’re really there for fla­vor. I think I do want to read this one just to set the tone. The num­bers here do tell the story. In 1970 there were just three main events – Cologne, Basel and the Brus­sels-based Art Actuel. The num­ber has mush­roomed in the past decade from 68 in 2005 to 189 in 2011. Georgina [Adams] wrote that in 2012. I’m cur­rently count­ing every art fair in the world, and among con­tem­po­rary fairs only – that’s fairs that show con­tem­po­rary art – I’m up to 220 and I know I haven’t counted them all. If I add in the fairs that I know that exist that don’t include con­tem­po­rary art, the num­ber is close to 300 at this point. So, even from the time that Georgina wrote that, the num­bers are con­tin­u­ing to rise. And they are show­ing no signs of stop­ping just yet. Why the explosion?

I point back to what happened at the NADA Art Fair in Miami in 2002 as the beginning of this notion that the world needed more art fairs. If you were in Miami in 2002, you’ll know that Nada was a satellite to the Art Basel Miami Beach Fair, and a very roughly organized fair by a group of young dealers. It didn’t cost very much to participate but within the four days the fair that took place, those dealers generally sold their booth out one, two, or three times over, and brought in perhaps more money than they would see through their galleries in the space of the six months previous to that. So the perception, as word trickled out, that the galleries had just made boatloads of money at that one weekend in Miami, started to change about what an art fair could be, how much it would cost to produce one, who was qualified to organize one, and eventually more and more people started beginning their own fairs, because demand just exploded.

In 2002 roughly 48 to 60 galleries participated in the NADA in Miami. The applications for the 2003 fair were four or five hundred range. So many more galleries were immediately interested in participating in that fair. Another thing that happened, though, was in response to the recession in 2008. If you’d asked any dealer at the time when they were looking at how the financial crisis impacted their ability to participate in art fairs, they would have expected the number of fairs to start dwindling. We were already having a conversation similar to this one in 2007-2008. There were so many fairs and people expected the recession to start knocking them down.

But one of the inter­est­ing things that hap­pened was a shift in per­cep­tion of who was respon­si­ble for get­ting col­lec­tors to the fairs. One of the peo­ple I inter­viewed for my book is Annette Schön­holzer, the direc­tor for new ini­tia­tive for Art Basel, and she said it was a sur­prise for her, when in 2008 and 2009, gal­leries started to come to her say­ing: “Where are the big col­lec­tors that we’re used to? They’re not here. You have to bring them here.” And Basel was say­ing: “We pro­duce the fair, we put the best gal­leries and the best art in the fair, you’ve always been respon­si­ble for bring­ing the col­lec­tors.” So, being the fair that they are, Basel said: “Okay, this is what you want us to do we will go out, we’ll increase our VIP pro­gram. We will do what­ever it takes to find the new col­lec­tors that are avail­able, as well as make sure the exist­ing col­lec­tors you know and love come to the fair.”

One of things that started to happen, though, is when they would reach out, as they would increase their VIP programming, they would send every participating gallery a package of VIP cards, and those galleries would send their cards out to all of their VIPs. Not surprisingly, some collectors would receive twenty or more VIP cards in the mail. And because they had so many extras, they would distribute them to their friends, and their friends were very often not VIP collectors. So, what you would see in the VIP lounge or at the VIP events were some of the people that the program was targeting, and then a lot of people that it was really never designed for.

So, the fairs start telling the galleries: “You give us your list of collectors and we’ll send out the VIP cards so that they’re not all getting multiple copies. That practice, in and of itself, shifted a huge amount of the power to the fairs. The fairs now had the quintessential collectors list. They had every person who has gallery’s VIP list in the world. And rather than see art fairs start to dwindle, in response to the recession, we started to see their power grow, and their numbers grow.

The other thing that is critical is that during all this time, 2002-2014, we systematically as dealers started to train collectors – that you will see the very newest, the very best, the most exciting work by our artist at the fairs. And even if they were buying them in advance, collectors started getting accustomed to the idea that this is where I purchase art. And this is where I can get an overview of the best art in the world. So, why am I spending as much time going around to all the various galleries? Now some collectors of ours have been collecting for 30 years will willingly admit that they have gone more and more to fairs and less and less to galleries individually because of this.

So, that’s the longest I am going to spend on any one of these slides, but I think that’s important for the background here. So the bottom line in terms of money out, the TEFAF Art Market Report is generated once a year. It’s commissioned by TEFAF. It’s released in conjunction with their fair in Maastricht, and it’s perhaps the best accumulation of data and statistics on the market.

It is still considered somewhat controversial because its author, Dr. Clare McAndrew, doesn’t have what some people consider the strictest methodology. Her sample sizes aren’t necessarily what somebody coming from an industry that uses reports like this as part of their business would consider that significant. But it’s the best data available. So, it does still influence perceptions. And in 2013 she reports that the total amount of money galleries spent participating in art shows was 1.9 billion Euros, and that’s money that comes from the galleries only. So, if you continue to the money – the entire art market was estimated to be 47 billion Euros in 2013, and dealers reported that 33% of their total sales were made at fairs.

I’ve done the math and I hope its right. The total money that galleries sold at fairs, and that’s not the total profit, that’s just the money they made per se, that’s just sales, was close to 16 billion Euros. So it’s more or less 8 Euros per Euro they spend at fairs. I should note that doesn’t represent the money made by every gallery at every level.

The top-tier galleries are probably making much more than that, and the lower level galleries, especially in the mid level, are quite lucky very often if they even break even. So because galleries in the emerging market or in the contemporary market generally have a 50/50 split with their artists, a gallery is probably selling twice what they are paying to participate in the fair, but they’re only receiving half of that, so it’s a one to one. This chart is probably hard to read from the back of the room, but it breaks down the sources of sales for galleries as recorded in 2013, and you can see that 33% is attributable to fairs. The breakdown is 19% for local fairs and 14% for international fairs. This is a chart showing where the most galleries are located.

You can see cities like Paris, London, New York, Tokyo. That’s not surprising that they have the most galleries. This isn’t a finalized chart, but the idea is to show the number of galleries correlates to the number of fairs that these cities also produce. So, a city with a red star on it is a city that has either a lot of fairs – or high profile fairs, very influential fairs. A city with a blue star is a city that’s either going up or coming down in terms of the number of fairs, or the importance of the fairs they have. An example might be São Paolo is coming up, its fairs are coming up its fair are gaining in importance. Berlin is going down. It’s either losing its fairs, or they aren’t as important as they used to be.

Basel is at the bottom by itself. It doesn’t have as many galleries as other cities, but it has the most important fairs, arguably. Despite that geographic dispersion of where the fairs take place, where the sales take place is pretty isolated to the United States. The TEFAF report of 2014 found that 75% percent of sales at art fairs take place at art fairs in the United States. And if you ask – and they did – the dealers around the world, 91% of them said that they needed to participate in just as many or more fairs in the United States because of those sales. If you ask galleries in New York, most will report that everything else being equal they’ll do their best business in Miami.

There’s something psychological about it. It’s where sales happen. We cynically refer to it as it’s like shooting fish in a barrel. The impact of this fair culture, this rise of the art fair on dealers includes statistics of some galleries reporting going to 15 fairs a year, that’s more than one a month. The impact of that on their gallery practice – is they either need to bring on more staff or they themselves are on the road up to 90 days of the year. That’s 90 days they’re not in their gallery, they are not with their families, they’re not as close as they need to be with their artists.

It’s having both a financial and a personal impact on the dealers. And as this quote from a New York Times article about the life on the road of the art dealers illustrates, it’s shifting the culture from this genteel practice where you would wait for someone to come into your gallery or you would have this leisurely conversation with them, to one where you’re constantly on the road and everything is happening much more quickly.

The impact on artists is probably ten times worse in my opinion. At the fairs, the top metric of the success for any given artwork is whether it’s sold or not. And that starts to influence what artists give their galleries to take to the fairs. They want to be a success. They want the piece at the fair to sell. Also, for the galleries to get into the best fairs, and to please the collectors that come to those fairs, there’s an expectation that to every fair you’re bringing something new.

I’ve had a num­ber of col­lec­tors com­plain as they were walk­ing around one of the fairs we were par­tic­i­pat­ing in: “I saw that at this other fair” I saw that at that gallery, at a show they had.” And the per­cep­tion is that artists can’t be doing very well if a piece I saw in a gallery is now at a fair, or a piece that I saw at one fair is now at another fair. And so to cre­ate the impres­sion that all of your artists are very suc­cess­ful as well as to please the col­lec­tors that come to the fairs to see some­thing new, gal­leries are con­stantly say­ing: “I need some­thing new,” and by say­ing that the artists are respond­ing to it.

Even if an artist has a very clear head about it their still com­part­men­tal­iz­ing their prac­tice. They’re mak­ing some works specif­i­cally for the fairs and the other work that they’re com­pelled to make. So, the over­all impact of this is some­thing that peo­ple are now refer­ring to as “art fair fatigue.” And you’ll see a num­ber of arti­cles and the lit­er­a­ture about it.

There are even clever little articles on how to deal with art fair fatigue, what shoes to wear and what spot to be is forming around airports, etc. Despite art fair fatigue, though, 45% of dealer felt that they will still invest in more fairs internationally. I think it’s said that there is a cultural backlash, where more and more dealers are saying: “I want you the collector to come to my galleries, instead of just meeting me at the fair.” A lot of dealers are saying just that to their collectors: “Come visit me. You won’t see at the fairs what we’re doing at the galleries. It’s important for you to be involved in the dialogue that’s happening in the gallery, and for you to come to the gallery.”

And some galleries in Chelsea have enough in the gallery and they don’t see the need to increase the number of fairs they are participating in, but remember that 17% of the sales happening is local, and for New Yorkers, they’re local for US fairs that are selling the most anyway. So, and that is it. Thank you.

Elisabeth Dee


New York Gallerist Elizabeth DeeI didn’t prepare a formal presentation, because we have so many tonight, and I’m typically Ed’s sparring partner, someone to play that role. Ed, thank you so much for giving us your insightful analysis on the situation with fairs and what the risks, rewards, and consequences can be. I’m going to speak primarily from, or just engage a little bit, primarily, from the gallerist’s point of view, because we are the two gallerists and art fair founders.

I founded a fair called Independent, which takes place twice annually in March and November at the former DIA Center for the Arts. And I think it’s really critical to talk about the dynamic of fairs, vis-à-vis those that were founded by gallerists and run by gallerists, and those that have become more institutionalized, or more of their own private enterprises.

Art Basel was founded by Ernst Beyeler who was a very impor­tant noted gallerist, a his­tor­i­cal gal­lerist. And I think it’s impor­tant to think about gal­lerists com­ing together to col­lab­o­rate on the issues of the day and present them mutu­ally. What Ed said was so insight­ful. With the shift to a more cor­po­rate cul­ture of art fair man­age­ment, gal­lerists have lost cer­tain pro­tec­tions that they once enjoyed. I’m not say­ing that there have not been ben­e­fits in that things have become more of an open and trans­par­ent mar­ket for col­lec­tors and for other gal­lerists to see what’s truly going on.

When you have 180 gal­leries from all over the world one is able to get a great index – how­ever, I think there are cer­tain con­cerns that gal­lerists only know and cer­tain infor­ma­tion that gal­lerists only trade with each other, that can inform and develop fair cul­ture in a more mean­ing­ful and in some ways more pro­gres­sive way. And that is why Ed and I both have started fairs with our gallery col­leagues. Would you agree?

Ed Winkleman: Yeah. Elisabeth and I were on a panel all together at Art Basel last summer, and it was about the way that galleries who have been in business for a while aren’t necessarily surviving as well as the top-tier are. And the moderator said in response to what was talking about the number of fairs we were doing and the costs, and the personal costs: “But you both started fairs yourself, so aren’t you both responsible for this in some way?” To which our response was: “We started alternative fairs that are actually not only art driven, they are gallery-centric. Both of our fairs are trying to solve some of the issues that we see with some of the bigger fairs. I think that the fair model itself has a long way to go to even catch up what the galleries are able to do. I don’t even necessarily think that even the galleries are the quintessentially best context in which to view art. My favorite place to view art is in a collector’s home. But I think, through efforts like Independent and some of the fairs out there – pushing the model here and there, experimenting with it, trying to find a better way – because I don’t think the fairs are going away. But I think they have a long way ago.

Elisabeth Dee: I com­pletely agree. I also think that given the kind of econ­omy that we’ve cre­ated, as gal­lerists, doing gallery-cen­tric fairs, it’s allowed for more kinds of exper­i­men­ta­tion in the art fair model. When I first started in 2002, one of my first fairs I ever did was NADA. I think that my costs annu­ally in doing fairs, as an emerg­ing gallery, was prob­a­bly 25 or 30 thou­sand dollars. Now I spend over a quar­ter of a mil­lion dol­lars in fairs, and I’m not a large gallery. And I still want to develop artists and intro­duce artists and develop strate­gic, cura­to­r­ial sup­port for my artists – not just sales. And to me that bal­ance is crit­i­cal for the devel­op­ment of artists in a sus­tain­able way.

So, when you work with many fair organizations and their economies, which are very expensive, you can see your profit margins going all the way down to 50% or 30% of the revenue that you would normally have in the gallery. One has to really analyze and consider those factors. And I think that what we’ve been able to do with Moving Image, which is Ed’s fair – which is devoted to video art, and keeping costs to a place where gallerists can afford to take the risk of introducing new material – or Independent, which is also equally inexpensive, even for the emerging gallery in Europe that may be doing their first fairs of their gallery’s career and their artist’s career.

It’s really important to be able to think about new creative economies for gallerists that aren’t selling things that are a million dollars on the stand, and who want to develop a dialogue and a programmatic curatorial conversation around their program. I think it’s wonderful that we now have so many fairs to choose from, in terms of how we spend our time and our own personal research of galleries and their programs. And I think it offers a lot. I think these kinds of initiatives help the gallerist face the realities of the economy as they grow and develop as galleries.

Ed Winkleman: You have one thing there I’m going to read off of, because I think this is a really interesting point, in the context of this conversation would be great to talk about: the ethical question of galleries being the gatekeeper’s to these fairs. They’re so important and 33% percent of your sales and your competitors have a say whether or not you get in to better fares.

Elisabeth Dee: We switched topics, okay. Because that wasn’t a part of your talk, I didn’t want to introduce a new topic. But, as we know fairs impose certain challenges for the gallerist who is looking to enter a system that already exists; whether it’s Frieze at 180 galleries or art Basel at 200 galleries. Many of the galleries have been are there for many, many years, with very strong programs – and it’s very competitive.

Main­tain­ing a posi­tion in those fairs is also com­pet­i­tive, and the decision-making process of these fairs is extremely prob­lem­atic from my point of view. There’s no sys­tem for rat­ing your peers. When you’re invited to be on art fair selec­tion com­mit­tees, of which I have been on many, I have been pon­der­ing this ques­tion: how does one objec­tively ana­lyze a pro­gram wants to be part of a fair. What’s the eval­u­a­tion sys­tem? How do you eval­u­ate cura­to­r­ial pro­grams on a basis of merit against other gal­leries that may be of a dif­fer­ent gen­er­a­tion, but still work­ing with the pri­mary mar­ket? How do you han­dle aspects of their own rep­u­ta­tion in the field? What is their stand­ing with col­lec­tors? What is their stand­ing with artists? Have they sim­ply careers of artists and put them into the pro­gram, or have they actu­ally done strate­gic devel­op­ment for those artists? There are no clear fac­tors to address this.

And when gallerists get together, even really, really accomplished gallerists may be very unaware of certain programs in certain geographical regions or certain generational regions. I feel that the fair can be often at a disadvantage making decisions about its content and its participants based on a group of dealers that may not have the right tools in order to evaluate this properly. You also have factors of politics involved, because dealers do work together. They often share artists. There is often a long history of working together or competing with each other.

There can be a lot of political factors that are unfair in evaluating other galleries based on subjective experiences that people bring to the table when they have to vote. And this can be quite problematic for many galleries who can be part of these fairs and for the reason of one single committee member be eliminated from the fair for many years and have to deal with the issues that ensue once one was part of something and is now no longer able to participate – nominally for the artists they represent. But the financial impact can be often huge and sometimes extremely debilitating to certain galleries. This is something that I think this has not been clearly addressed in the fair system and I think deserves to be

Ed Winkleman: I totally agree. I don’t know what the answer could be. With Moving Image we have selection by a curatorial advising committee, so it’s not other galleries choosing the participants, it’s curators, but even that is far from a perfect system. I don’t know what would be the perfect system honestly.

Elisabeth Dee: And at Independent we’ve gone the totally opposite route, where no, it’s invitational process with one curatorial advisor, and we have no system for application because we don’t feel we have an adequate system at hand to evaluate those applications.

Ed Winkleman: But there’s no question the impact of certain galleries can be huge and politics plays into it. The chatter that goes around after the list comes out for any big fair…

Richard Lehun: But I think both of you are speaking to very key issue. that I’m also trying to give a structural analysis to, but I’ll wait to do that. I want to just underscore that I think often from a legal point of view, we often as lawyers are not necessarily paying enough attention to. I think the very fact of being able to bring the issues out into the open, to be able to frame them, and to bring stakeholders in and have stakeholders address those problems is very key to whatever a solution might be. The greatest difficulty is to have stakeholders feeling like they’re somehow affected by the process, for which there is no voice or language. And that’s one of the things that were trying to do with these outreach events is encourage a community that has been long entrenched in a kind of self-mythology, which is been both self-serving and also protective. But some of these protective strategies about information, about one’s own positioning, might be devastating bad in times of turbulent change – where the exchange of information and the building of mutual understandings about outcomes, desirable outcomes are necessary, and where those things can’t be done ad hoc anymore, independent of what powerful actors can do on their own. But a collective understanding can only be achieved by this type of bringing to language, bringing into the foreground the multiplicity of issues that you guys are speaking of. I’ll turn the word back to both of you.

Judith B. Prowda: Absolutely. Please Continue.

Elisabeth Dee: We talked about the position of protecting the gallerist. We talked about the need for a peer rating system and how the fairs are organized. One thing we touched on was the cost, but we didn’t really go into that in great detail. I think that also deserves a few minutes. Because, when one art fair raises their prices, the other art fairs that are competitive with that fair tend to follow suit.

We’ve seen that before, especially in recent years the cost that has increased, particularly in New York and London. Galleries fight very hard to sell over these costs, to make their enterprises worthwhile there. The question that I keep asking myself and as gallerists, I think we ask together is – what rights the galleries have and what responsibilities do fairs have to the galleries with regards to these costs.

Clearly a light bulb doesn’t cost $2000 an outlet doesn’t cost $1000, even a Swiss one. As a gallerist, you start to feel like you’re not the client. And we are the clients of these fairs. We generate the revenue for the fair, and we also generate the revenue for all the artists, for all the creators of the works in the fair and that is our unique responsibility. But we do not have leverage over how these costs are allocated. We don’t have a clear system for addressing them with the fair organizers, which clearly have to make a profit as a sound business, but to what degree? I don’t know about the statistics, maybe you do, but I have heard that the application to Art Basel … just the fee alone … I can’t remember how much we paid for that.

Ed Winkleman: Four to six hundred dollars …

Elisabeth Dee: … four to six hundred dollar application fee. And given the level of applications they have, because of their stature, they do well over one million dollars on application fees alone. Now is that being given back to the project, and in what form? And how does one responsibly handle that. This is something that I’d like to see addressed in a more systematized way.

Ed Winkleman: I think I can flesh this out a lit­tle bit. From talk­ing to some of the director’s of the fairs for the book, they col­lec­tively report not mak­ing as much money as it looks like they’re mak­ing, and that may not be sur­pris­ing but the details are. There is a build­ing where an art fair takes place in a major city. I won’t give too much away, that I think, 10 years ago, cost $70,000 to rent for the week, or week and a half. It now costs over $400,000 in 10 years. So, it’s not the fair that is just always rais­ing their prices. It’s every­body around them know­ing peo­ple are com­ing for this fair. I’ve got a cap­tive audience.

If you try to get a hotel in Miami during Basel on Miami Beach, you know that everybody’s caught on. The costs are through the roof, across the board. And if you’re working with union workers to assemble or produce your fair, you’ve got a bunch of extra costs and things there. I don’t want to give any names but almost to a person, each Art Fair organizer has a long list, from their point of view, of rising costs which would make it impossible for them to lower their prices that they charge the galleries.

Elisabeth Dee: I still believe that fairs are a place to exhibits innovation in the field and when fairs cost this level of money to participate – how can one afford the risk of introducing new ideas? New ideas and new artists become risk factors for gallerists, and so that’s what you’re not seeing, innovation. One could be seeing it if there was some way to have a forum where some of these conversations could be discussed and responded to with art fair organizers. I think we’d be in a better position, I think we have the better content.

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Art Fairs: Panel Discussion on May 27th at Sotheby’s Institute of Art


Art Fairs: An Irresistible Force in the Art World?

Tuesday May, 27th 2014

Panel Discussion and Q & A: 6.30-8PM

Wine and Cheese Reception: 8-9 PM

Sotheby’s Institute of Art, 570 Lexington Ave, New York, NY

Register here.

Are brick and mortar art galleries the loss leaders in an art world potentially spiraling beyond viable limits? More than ninety art fairs now define the rhythm of globalized art business. This development has profoundly altered the relationships of artists, gallerists, and collectors.

The Entertainment, Arts and Sports Law Section of the New York State Bar Association is holding a panel on the impacts and challenges – legal, ethical and business – of the rise of art fairs. This program is part of an initiative to create dialogue amongst lawyers and emerging and established art professionals working in the primary or secondary markets.

Gallerist Elizabeth Dee will report on the chances and risks that the art fairs impose, in light of the ambitious expansion that her gallery has recently embraced and her perspective as Co-Founder of the art fair, Independent, New York.

Attorney Richard M. Lehun of Stropheus Art Law will examine the plethora of ethical and business issues that art fair participants confront.

Attorney Nicholas M. O’Donnell, a litigation partner at Sullivan & Worcester LLP, will present on the legal issues that art fairs carry with them.

Gallerist Edward Winkleman will offer an overview of the research he is conducting on art fairs in preparation for his upcoming book “Selling Contemporary Art: How to Navigate the Evolving Market” (Allworth Press).

The panel will be moderated by attorney, educator, mediator, and arbitrator Judith B. Prowda, Faculty at Sotheby’s Institute of Art and author of Visual Arts and the Law: A Handbook for Professionals (Lund Humphries 2013).

 

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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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Perelman Gagosian Lawsuit: Judge Kapnick admits Fraud Claim


"Popeye" by US artist Jeff Koons

In the latest development in the Perelman Gagosian Lawsuit, Judge Kapnick has dismissed all causes of action, except for fraud related to exchange transactions that included Cy Twombly’s “Leaving Paphos Ringed With Waves.”

The amended complaint had included six claims: breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment, and deceptive business practices under section 349 of the General Business Law.

This case is important because it raises the question of whether a dominant art context actor like Larry Gagosian has a higher legal burden of accountability and transparency, even that of a fiduciary standard, because of the influence he wields.

Judge Kapnick reinforces that “allegations of superior knowledge or expertise in the art field are per se insufficient to establish the existence of a fiduciary relationship.” The majority of knowledge and power differentials in the art world remain immune to fiduciary review. However, the fiduciary question is central to the complaint, and is referenced twice in the decision, each time dismissed not on substantive grounds, but rather on the specifics of this case. Larry Gagosian’s potential fiduciary exposure appears to be strongly connected to the objective status of the buyer.

The court argues that the “essential elements of a fiduciary relationship are ‘de facto control and dominance.'” There is no question that Larry Gagosian, and those working with him, have at times dominance and control over the market for certain artworks, or even for those of specific artists. Judge Kapnick stresses several times that Perelman contracted through MAFG Art Fund and Macandrews & Forbes Group LLC, and that together they are legally represented, “experienced and sophisticated business investors who entered into negotiated, arm’s-length transactions with defendants.” These facts preclude the finding of fiduciary obligations.

But the decision does not explicitly rule out that someone with comparable influence could be found subject to fiduciary obligations with another buyer. In fact, the court even makes the distinction that the specifics of the relationship between Perelman and Gagosian, who “were friends for 20 years, ‘socialized together,’ were ‘business acquaintances,’ had ‘worked together’ previously and invested together, cannot be addressed because […] Perelman is not named as a party.” Not because such a consideration would be in and of itself impossible. Of course, the finding of a fiduciary standard would not be conclusive in and of itself. Once a fiduciary relationship was established, relief would depend on showing misconduct, and that damages directly resulted from it. These factors can be difficult to prove, and remain a built-in hurdle to uncontrolled fiduciary exposure.

Despite opening the fiduciary door, and then shutting it on these facts, Judge Kapnick focuses on overlapping considerations. The court cannot deny by law that Gagosian “has enormous power to influence, and even set, the markets for the artists he represents because of his impressive roster of artists and his access to and knowledge of the largest private art collections in the world.” As a result, a buyer may be entitled by law to rely on Gagosian’s representations regarding the art market and the value of particular works of art, even if they are sophisticated art collectors and investors.

The potential for increased exposure, based on de facto control and dominance, that can equitably cut through private ordering and force a party to exercise a higher standard of care – call it what you will – feels to me like a harbinger of fiduciary duties to come.

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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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US Copyright Office on Artist Resale Rights: Full Text


Artist Resale Rights in the US?

“In general, visual artists do not share in the long-term financial success of their works. […] Instead, the financial gains from the resale of their works inure primarily to third parties such as auction houses, collectors, and art galleries. Moreover, the income typically available to other authors through reproduction and derivative uses of their works is more limited for artists. […]  The Copyright Office agrees that these factors place many visual artists at a material disadvantage vis-à-vis other authors, and therefore the Office supports congressional consideration of a resale royalty right, or droit de suite, which would give artists a percentage of the amount paid for a work each time it is resold by another party.”

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Anatomy of an Artist Invoice


For many emerging artists, the invoicing of direct or studio sales is a hastily filled out form (if there is any invoice at all). This is not as good an idea as it seems. In the absence of a more formalized sales contract, the invoice can define many important obligations between the buyer and the artist. This text will review a few of the critical terms that a relatively simple invoice can contain.

When does the Buyer actually own the Work?

The artist invoice can make clear that the buyer does not actually own the artwork until the artist is fully paid. An invoice containing words to the effect that, “title to the artworks remains in the artist until the artist has received the full amount owing for the artworks,” can make recovery of the work in the case of non-payment significantly easier.

Title is an important legal category. It means that a court can, on the face of it, recognize that someone has a collection of exclusive rights as against other interests. Someone who has retained or acquired legal title has a court enforceable right to exclusively possess, use, sell, or otherwise dispose of an artwork. If an artist retains title, but allows the buyer to possess the work until being fully paid, then the exclusive rights listed above remain with the artist.

The fact that an artist has a strong legal right does not mean that one need to go to court to enforce it. The overwhelming majority of  contract disputes are settled out of court. The best way to prevent litigation (that is, the full process of having a court reach a decision on a matter) is to create and maintain clear legal distinctions around key questions. By doing so there is pressure on a non-performing party (in this case, a buyer who is not living up their side of the agreement) to respond without a court’s intervention. A letter from a lawyer demanding the full payment or return of the works has a significantly higher chance of success if an artist has retained title in the manner described on the invoice. In the case where a problem needs a court’s intervention, the issue of title will be key to an efficient and cost-effective proceeding.

Title does not mean Copyright

Even though copyright is created by law when the artwork takes on a tangible form, it is important to remind buyers that they are not acquiring rights to the creative content.  Copyright is a collection of rights, including making reproductions, adapting the work, selling or assigning rights to exploit the work, or making it available to others by technological means. A buyer can enjoy the unique physical iteration of the work, and has all of the rights associated with title mentioned above, but  may not appropriate the unique creative expression.

There are a number of reasons why an artist should communicate about copyright with a buyer. Copyright gives the artist the exclusive right, for example, to make use of copies of the original work for professional purposes. It is important that the buyer understand that the work is acquired subject to limitations. This effectively means that for the length of the copyright anyone must ask the artist for explicit permission to use the artwork in any way other than simply enjoying its possession. Typically this can be included in the invoice by stating that the artist reserves all rights to the artwork, and that the work may not be reproduced in any form without prior permission.

In the US, copyright is typically life of the creator plus seventy years. This means that not only does the creator have rights until the end of his or her life, but that the creator’s estate continues to have control over the works for decades. In expectation of the increasing value that the electronic reproduction of works will generate, it is important to ensure that a buyer understands what they are getting, and that the artist understands and manages the value of works created.

Let the Buyer know that Works may be needed for Future Exhibitions

Keeping a record of who buys artwork will be imperative as an artist’s career evolves. Gallerists, dealers, and museums will want to show the evolution of an artist’s work and the historical context of production. Every early work that leaves the artist’s hands is a puzzle piece that may have a lot of meaning to future professional partners. For this reason it is imperative that an artist keep records of what they have produced, but even more importantly, who the work has gone to. The invoice should contain as much unique identifying and contact information as possible.

In addition, it is valuable to signal to buyers that they take the piece subject to its use in future exhibitions. The invoice can include a term like “buyer agrees to make the artwork available upon reasonable request for exhibition at the artist’s studio, and in galleries and museums, provided that such does not incur costs for the buyer, or that any such expenses are in the name of the borrowing party.” While not a legal right that can be easily enforced against a buyer, it will put the buyer on notice that this can happen, and that they should be prepared to cooperate in good faith if they want the piece.

The Right of First Refusal

It is a longstanding practice that gallerists carefully control price increases to prevent radical shifts in the market which could be disastrous to an artist’s career. To an emerging artist, this may or may not appear relevant. However, it is important to keep a watchful eye out for the moment when it is preferable to have a collector bring works back to an artist or gallerist before disposing of them on the open market.

The right of first refusal is a contractual provision, and does not enjoy the same kind of statutory protection that copyright has. This means that a court can look at the provision and balance it along and against other contractual claims. Nonetheless, an invoice could include a provision that states that “before the artwork held by the buyer or any transferee of the buyer may be sold or otherwise transferred, the artist or his or her assignee(s) shall have a right of first refusal to purchase the artwork.”

Because it is impossible to predict when the re-sale of works could impact on an artist’s career, there is no harm in including a right of refusal provision in invoices. You can always decline to exercise the right if there is no prejudice in doing so. If a buyer feels uncertain about the clause, an artist can point out that he or she only has the right to make the first offer or match any offer that the buyer has. It will not typically prevent the buyer from selling the work.

Conclusion

These are just a few invoice elements that can have a significant impact on an evolving career. As I tried to stress in the section on title transfer, applying the law does not mean a more confrontational relationship with buyers, but rather that important questions be discussed in a transparent and timely fashion.

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