Art Advising 2.0 : Vertigo & Accountability – Part I

Posted on May 30, 2015November 19, 2015 by admin

This event, held on April 1st, 2015 at Sotheby’s Institute of Art, explores current ethical and business questions that art advising creates and the legal obligations that their relationships rely on. Art Advising 2.0 — Vertigo & Accountability is a collaboration amongst Sotheby’s Institute of Art, the Association of Professional Art Advisors, and Stropheus Art Law.

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

Panelists:
Sean Kelly, Sean Kelly Gallery
, Attorney at Stropheus Art Law
, Executive Director The Armory Show
, Megan Fox Kelly Art Advisory

A dedicated audio recording of Sean Kelly’s comments precedes his text. A video of Richard Lehun’s PowerPoint presentation can be found in the section on his presentation below. Due to a technical malfunction, we regret that a secondary audio source was used for the first eight minutes of the recording.

Judith B. Prowda

Welcome everyone to this evening’s program, Art Advising 2.0. Vertigo and Accountability. I’m Judith Prowda, and I welcome you here this evening to this panel discussion and dialogue. I thank our illustrious panel for participating, and special gratitude to Richard Lehun for planning this panel with me.

Art advising is not a recent phenomenon. The existence of the art advisor dates back at least to the 17th century. Diego Velázquez traveled to Italy in order to acquire works by Titian, Tintoretto and Veronese for King Philip VI of Spain. New and vastly rich industrialists in the 19th century, perhaps more competent in their business acumen than art expertise, also relied on intermediaries, sometimes artists, to cultivate their tastes. Alfred Barnes, for example, depended on William Glackens to educate him and to build his fabled collection. See Georgina Adam, Big Bucks: The Explosion of the Art Market in the 21st Century 93 (Lund Humphries 2015).

In the last century, prominent dealers such as Lord Duveen of Millbank, known in this day as “Napoleon of the art dealers,” guided an impressive roster of clients – Morgan, Frick, Mellon, Altman, Huntington, just to name a few – in forming their prestigious collections. A consummate salesman, Lord Duveen not only ferreted out the most exquisite masterpieces in all of Europe, but he also designed his clients’ homes, consulted with them on their dinner parties, and even kept his vault stocked with their favorite cigars. He was also known to rhapsodize about the paintings his clients acquired long after the deal. As Andrew Mellon remarked, “My pictures never looked so marvelous as when you are here!” See Michael Peppiatt, ‘Duveen’: The Art of the Deal, NYT, Sept. 19, 2004.

There has been a radical shift in the art world in recent years. According to the just released TEFAF report 2015, the global art market topped 51 billion Euros in 2014, an increase of 7% year on year, and its highest recorded level. The sheer magnitude of the global market has made it all but impossible to keep pace. With over 180 major art fairs with an international element, not to mention hundreds of smaller regional and local fairs, plus biennials, triennials and auctions crowding the art world calendar. And this does not include online art sales, which according to the online TEFAF Art Market Report is conservatively estimated to have reached 3.3 billion Euros, or around 6% of worldwide art and antique sales by value. See TEFAF Art Market Report 2015, prepared by Dr. Clare McAndrew. It is a full job simply to navigate the boom. Hence the rise of the art advisor.

Today, art advisors are valued as much for their access to galleries and high quality pieces, as for their advice on what works to acquire. See Mary Rozell, The Art Collector’s Handbook 30-31 (Lund Humphries 2014); Mia Fineman, Art Advisers, NYT Oct. 15, 2006. This is especially so in the primary market, which is largely based on trusted relationships. Top tier galleries with waiting lists for their star artists can be as highly selective as they choose. A trusted advisor can assure a dealer that their prized inventory will be placed in the right collection (the operative word being placed). And that their client will not flip the work either at auction or through another gallery.

At the same time, a well-connected advisor can act as gatekeeper and bridge for dealers to new classes of collectors, who may have money but not necessarily the knowledge of time to build a collection. See Daniel Grant, When Art Buyers Need Help; High-End Purchasers May Have More Money Than Knowledge, WSJ, Feb 2, 2015. For all these reasons, art advisors wield enormous power in the market, and the profession is growing.

There is no professional certification to become an advisor. So reputation is key, as everywhere in the art world. Art advisors practice in different ways. Some dealers are advisors and some banks have specialists who advise their collector clients. The profession is self-regulating.

The Association of Professional Art Advisors (APAA) is the main trade association. Membership is by invitation only. The APAA has its own Code of Ethics. Art advisors who are also dealers are not eligible for membership in the APAA due to potential conflicts of interest.

As in all business relationships in the art world, transparency is key. The best advisors, like the best dealers, desire to establish long-term relationships with their clients, not one-off deals to make a profit.

Who are the art advisors? What qualification does one need to become an art advisor? Who hires art advisors? People who wish to buy for personal enjoyment or to build a serious collection for their future legacy? How does one go about finding the right advisor? And how do advisors work? How are they compensated? Where do they look for art – galleries, art fairs, auctions, online, directly from artists’ studios?

Along with the rise of the art advisor is the emergence of complex legal and ethical issues. For example, and these are but a few: What are the pros and cons of using an art advisor? Shouldn’t people trust their own taste in acquiring art? Is art advising more common in the United States than in other parts of the world? How is art advising understood abroad? How are art advisors paid? Percentage of the purchase price? Retainer? Hourly fee? Isn’t there a potential conflict of interest if an advisor is paid a percentage of the purchase price when they’re negotiating the price on behalf of a collector?

Suppose an advisor has more than one client who wants to purchase a certain artist or a specific work. Who gets it? If an advisor is a dealer, wouldn’t there be a tendency to sell from their own inventory rather than putting their client’s interest first? What about double dipping? That occurs when an art advisor receives a fee both from the collector and from the gallery. Under what circumstances, if any, is this okay, legally and ethically? These are just some of the important questions we will explore this evening.

I’m grateful to my employer, Sotheby’s Institute of Art, for graciously hosting this event, as so many other events I’ve organized in this beautiful space, which is my second home.

This program is part of an initiative to create dialogue amongst lawyers, artists, emerging and established art professionals working in the primary and secondary market. In the past year and a half we have held programs on Gallery Ethics and The Rise of Art Fairs, both in collaboration with the New York State Bar Association Entertainment, Arts and Sports Law Section, of which I am Past Chair.

We have posted an audio podcast and transcript of these programs on the Stropheus Art Law website and will do the same for tonight’s program. Our next event will be on the topic of the online art market.

To explore the complexities on the role of art advisor, let’s begin with the perception of a gallerist, Sean Kelly. We will follow with attorney Richard Lehun, who will explore the nexus between legal and ethical questions. Noah Horowitz will examine how art advising has impacted the global art business and the art fairs in particular. Megan Fox-Kelly will end by exploring legal best practices for art advisors and the role of the Association of Professional Art Advisors.

Thank you very much. Please join me in welcoming Sean Kelly.

Sean Kelly

Good evening and thank you all for joining us this evening. I would like to start out by thanking Sotheby’s Institute, Judith and Richard, for their invitation, and express how happy I am to be on such an illustrious panel with Megan and Noah. I want to point out a couple of facts before I start. This evening is being bracketed by two Kelly’s so it’s going to be good night for them. And we are going to conduct the rest of the meeting downstairs in the bar afterwards.

I have a confession to make, I actually know nothing about this topic whatsoever, and the only reason I’m here is that I got the invitation, I noticed the date was April’s Fool’s Day, and I assumed that it was a joke, so I said “Yes.” Now, I found that it wasn’t, so I’ve done some research. So, I’m going to through some stuff out there just to get us going, and let the experts really attack the topic.

I wanted to pick up on a few things that Judith had mentioned, and there’s one particular theme that I want to illustrate for you more broadly. I don’t want to talk too much about the specifics of art advising or art consulting, I think Megan’s going to talk to that point more fully.

I wanted to start out by picking up from something that Judith said, acknowledging the very important role of artists historically in this field. One of the more maverick and interesting artists of the 20th century, Marcel Duchamp, actually was working as an art consultant and he was the person who brought Brâncuși to America and sold most of the Brâncuși’s in America that you see. Certainly the ones in Philadelphia – the bulk of his own work in that great museum [Philadelphia Museum of Art]. He was also instrumental in the Société Anonyme which ended up becoming the Museum of Modern Art. So, Duchamp’s role as an art advisor, and that of many other artists, has been very important in shaping our culture profoundly.

More recently, those of you who knew Herb and Dorothy Vogel and the incredible collection that they formed, or have the pleasure to be invited to their very small apartment to see their very large collection, were probably regaled with the fact that when they started out, the person who took them around the galleries and introduced them to the artists was Richard Tuttle. So, they too were being guided by an artist.

So, there’s a very long and important tradition that establishes the role of both professional and more informal art advising. The Vogel collection of course ended up going to the National Gallery of Art [in Washington, D.C.].

The historical role of dealers, curators, museums and advisors as taste makers is well-documented and one of the things that struck me when I was thinking about this topic was that when I started working as a gallerist – and I want to make a distinction between being a dealer and a gallerist, but that is not the topic of the evening’s conversation, but I think it’s an important distinction – when I first started working as a gallerist, some 25 years ago, I knew most of the significant players in this field, in my world, having come from being a museum person. And at that point the art world was rather like a country stream. It’s now something more akin to the Rio or the Nile, and it is a raging torrent. And there are now approximately 500, depending on whose advice you take from this, 500 to 800 galleries just in New York City alone. So it’s an enormous amount of professionals selling art, an enormous amount of art students leaving art schools every year, an enormous amount of everything to service that market.

Judith pointed out that the global art market last year is estimated at 51 billion Euros in 2014, there are about 180 art fairs around the world, there are biennials, there are triennials, there are auction houses.

One of the major points I want to make about this – and I will come back around to the art consulting and art advising – is that digital markets are in decline. Last year, the top 10 Hollywood movies grossed $2.5 billion. When you think about that in contrast to the amount of money passing through the art world, it is fairly insignificant. So, Hollywood is in decline, the music business is in decline, why is the art world in ascendency? It’s because we’re an analog business, they’re digital businesses, and we still control our product, to put it bluntly. And most other people can no longer do that in a global market and we are existing in a global market. So we are in a happy position of being in a growing market when many other arts producers and content providers are in a diminishing market. And I think that’s going to be a key issue in talking about these topics as we come back around.

We exist in an increasingly valuable and increasingly complex environment, which is populated by hundreds of thousands of art professionals that simply didn’t exist three decades ago. They weren’t there; they are now. The rise of the professional art advisor and consultant and dealer for that matter – we are all self-regulated – there are no regulations that exist for us outside our own professional organizations, whether it’s the APAA or the Art Dealers Association of America (ADAA) – which I sat on the Board of until recently.

There’s a high degree of moral responsibility because we’re self- regulated, which leads to, amongst our less scrupulous colleagues – and there are less scrupulous colleagues in all walks of life – to potential conflicts of interests. It means that we have to address issues of lack of clarity and transparency in our business. It means we are very reliant upon trust and knowledge and personal relationships, and we’re still in the rather archaic environment of doing business by a handshake and relying on principles and morals when many of our colleagues in all walks of life are heavily regulated.

One could conjecture in that environment – and I’m giving just a very brief view of it – that it would be good to have a road map or a GPS system for an increasingly complex world. I think that one would be encouraged to think about good art advisors, and there are many, as being your GPS system or your road map – or a bridge between the work, your artist, the dealer and your wall.

I’d like to stress that like anything else, there are good and bad art advisors, just as there are good and bad members of every community. Those who work in their client’s best interest are really invaluable, not only to their clients, but to us as gallerists. They are an invaluable link for us in building professionalism in an increasingly plural, complicated and increasingly vast market, frankly.

Part of the reason I was interested in participating on this panel this evening, was to be able to listen to my colleagues talk about and explore the specific role of art advisors, and their responsibilities in light of that world, and in light of the world that we need to navigate in. And of course to really talk with the audience, rather than at the audience, and answer questions from the audience – and at least be able to communicate with the audience – about all of our experiences in dealing with situations that art advisors have been involved in, certainly in the last 25 years that I’ve been a gallerist.

Those are the issues I’d like to raise, and I’d like us to think about as we listen to the rest of the panel and take questions and attempt to answer them for you. Thank you.

Richard M. Lehun

My presentation today is going to try to highlight some of the often-misunderstood issues regarding art advising and the status of being an agent. I’m also going to introduce the concept of fiduciary obligations via agency for art advisors.

Many of you may not be that familiar with the concept of fiduciary obligations, but it is a fact that all who are engaged in art advising are actually de facto subject to them, to the extent that you are acting as an agent of a client. This will give us an opportunity to run through some of the considerations that are actually structuring and framing your practice, even if they may be legal, and somewhat removed from everyday understanding.

Agency relationships are at the heart of the art world. Notable examples of agency relationships are in the representation of artists by galleries, the representation of consignors by the auction houses, and the third most prevalent form of agency, which is our topic tonight, the relationship between the art advisor and the buyer.

The single most important thing for art advisors, collectors and gallerists to understand is when advisors are acting as an agent they are legally obligated to be their client’s fiduciaries. Whether it is in a contract or not, whether in contemplation of the parties or not, or no one has raised the issue, the law imposes those obligations. We’ll get into them in a moment to understand more of what that means, but that’s the first take home message. Whether one is aware of them or not, they are simply de facto operative before a court and in law.

Fiduciary obligations order unique and valuable social relationships and are found in many settings where trust is critical. They’re found in doctor/patient relationships, lawyer/client relationships, amongst partners and in corporate governance. Fiduciary duties are imposed by society to balance power differentials. Society has legal structures that anticipate a situation where an advisor has superior knowledge, superior access to information, and may be able to make decisions in their own judgment for a client. A client doesn’t have access to the same type of empowerment, and the law has regimes to increase the security of the dependent party, of the vulnerable party.

Relationships of trust in the art community are inseparable from fiduciary obligations. Now, we have to pause for a moment and think very clearly about what is special about this fact. When fiduciary obligations are active – and they’re active by law – they’re not active by choosing them or not choosing them; they’re simply there. They change the nature of the obligations that people owe to each other in very unexpected and dramatic ways. Instead of being equal parties to a contract, fiduciary obligations create two distinct roles: the fiduciary, that is, the person who has power over another (the art advisor) and the entrustor or principal (the buyer).

It is central to understand that even if you come together under a contract – that is, an agreement that is to benefit each party – when fiduciary duties are present, they can trump any agreement.

I’ve stressed it, but I’ll stress it again, because it’s one of the core factors that gives fiduciary obligations the scope and breadth of their impact – fiduciary obligations are made by judges and courts. By default, fiduciary obligations trump contracts and other non-legal binding agreements. Fiduciary agreements can also be found between an art advisor and client even if both have explicitly disclaimed them. The court may step into a transaction, into a contractual situation, and say the contract between an art advisor and a client is unconscionable, it simply doesn’t have validity because it injures the basic right of a client to certain fundamental and legal norms. It’s important to understand that the courts determine when these fiduciary duties exist and determine their breadth and depth.

As a fiduciary, an art advisor must be loyal – in a moment we’ll get into exactly what that means, but we have to concentrate on the top level concepts first. An art advisor must be free of conflict of interest. Secondly, not only does a law impose this duty of loyalty, it also understands that this duty of loyalty has to be tempered by circumstances, which means that a court can step in and say that an art advisor has not exercised due care. This means that an art advisor has to be prudent in the eyes of the court.

Being prudent means being vigilant – independently vigilant – about conflicts of interest and transparency. Waiting for a client to pose questions is no defense against potential breach of these fiduciary obligations. This is independent of whether a client understands these obligations, is aware of them, demands them, or not. The onus is on the art advisor as the fiduciary to understand these concepts, and legally these rights belong to them even if the client is unaware of them.

Now that we’ve covered briefly the advisor as an agent and fiduciary, let us turn to the devil in the detail. What impact does this have on art advisors in their day-to-day practice?

When an art advisor is in an agency relationship with a client they must represent only that client’s interests. An art advisor cannot pursue any other interest whatsoever by law, and is under a complete obligation to maintain transparency. The client is not obligated to ask for this, or to provide for this, or even to know this. The law imposes this as a default, no matter what an art advisor thinks, has done, or practiced to date. And there is no easy legal argument that can be brought if there is a difficult situation with a client to defend the fact of not having maintained that loyalty.

It’s not a contractual situation, where the advisor can say: “well the client didn’t pay me, therefore I breached confidentiality or I breached conflict of interest provisions.” That’s irrelevant before the law. Because the fiduciary obligations trump whatever contractual issues are at hand, and ignorance is no defense, the advisor is obligated to be professional. The operative assumption by the law is that the client is vulnerable, and it is all but impossible to reverse or change that legal frame.

A key aspect of the fiduciary obligation of an art advisor is the exclusion of third parties and third party interests. The law imposes a fiduciary duty on the art advisor not to do or agree to do anything that would benefit anyone else other than their client. An art advisor cannot generate or intend to generate any profit, any benefit, for anyone but that client without disclosure or agreement on the part of the client.

Excluded third parties that can receive no legal benefit from the actions of an art advisor without full disclosure and agreement on the part of the client include: artists, gallerists, other collectors other clients, other art advisors, museums, framers, art handlers, and other service providers, etc.

The client – again, to stress this important dimension – is not obligated to ask for this, to ask for the exclusion of this. All art advisors are obligated to understand this and practice this by law.

A further deep responsibility of an art advisor as an agent and a fiduciary, is to have no undisclosed profits. In fact, the law mandates that art advisors are obligated to turn over any undisclosed profits. Every undisclosed profit an art advisor makes is automatically owed by law to the client.

Again, the client is not obligated to ask for this, not obligated to enforce this, nor make this an explicit provision of their relationship with the art advisor. If the matter ends up in court, an art advisor’s default fiduciary obligation will force full disclosure and the disgorging of all undisclosed profits.

The exposure to this liability lasts years after the transaction. Therefore, years after a transaction, if for whatever reason a client is not satisfied or has the intuition that there was some conflict of interest or some breach of trust in a transaction, that client can go to a court and force full disclosure of all people connected to a transaction and the disgorging of any undisclosed profits. Even if they were unrelated, and even if the client benefitted.

This is one of the curious things about fiduciary obligations. Even if an art advisor argues, “Well, if I give that hidden advantage to somebody, it will close the deal, my client will be happy, they’ll get the work that they want, but I’m not going to disclose this, because it would reveal to much information, or potentially compromise someone else’s interest.” That is no defense because of the legally imposed obligation of the singular loyalty to the client.

Even if a client agrees to allow an art advisor to generate a benefit for someone other than the client. For example, you (the art advisor) come clean or you actually included a high level of detail in your discussions with your client about how many other people are involved in the deal, what possible benefit that could accrue to them – even there, you don’t necessarily have a defense, because the law imposes an additional burden. You must have acted fairly from the perspective of an independent legal review, regarding the disclosure to the client of the existence of any potential actors who are gaining a benefit, and all other relevant information so the client can make an informed decision.

Even if everything looks great, and everyone is in agreement in the moment, a court can reverse everything and take away any benefit that has accrued to the art advisor and return it to the client, even years after the fact, in cases where the court does not agree with advisor’s and the client’s understanding of fairness. Counter-intuitively, the court may not necessarily take away any benefit received by the client and return it to the art advisor.

Fiduciary obligations take you off the rails of contract. All art advisors are fiduciaries when they’re agents of their clients. This is independent of whether you have a contract or not. So, an art advisor who breaches fiduciary obligations is liable for any unfairness or any lack of transparency, well after the transaction is over.

In closing, I want to note that fiduciary obligations on art advisors are to balance what are called “agency costs.” Agency costs arise when the art advisor or agent takes discretionary but imperfectly observable actions that impact the client.

The fact of operating within the confines of typical art world discretion subjects the art advisor to moral hazards and conflicts of interest, and fiduciary duties are precisely there to address wrongdoing, if it becomes manifest, or if there’s an intuition on the part of a client that it could be present.

In sum, despite not being well-known, fiduciary obligations and the agency relationship are at the core of art advising. In fact, the art advising profession is defined by them, whether art advisors are familiar with this fact or not. The vast increase in the role of art advising means that many people interacting with the profession are doing so without understanding how exposed they are. We hope, with this panel, that we can increase awareness and foster dialogue around this important issue.

I thank you for your attention, and I look forward to your questions later on.

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Art Advising Panel Discussion at Sotheby’s Institute on April 1st

Posted on March 12, 2015November 19, 2015 by admin

Art Advising 2.0 :
Vertigo & Accountability

Wed., April 1st
Panel Discussion and Dialogue: 6.00-7.30 PM
Wine and Cheese Reception: 7.30-8.30 PM

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

Register here or use the order form below.

The rise of the art advisor tracks the globalization of art business. Art advisors act as a bridge to new classes of collectors, but the role is often not clearly defined. Gallerists, dealers, art fairs and collectors encounter a heterogeneous profession. This event explores current ethical and business questions that art advising creates and the legal obligations that their relationships rely on.

Panelists

Dr. Noah Horowitz, Managing Director of The Armory Show and author of Art of the Deal: Contemporary Art in a Global Financial Market (2014). His writings and interviews on contemporary art and economics have appeared in The New York Times, The Observer, artinfo.com, Das Handelsblatt and ArtTactic. He holds a PhD from the Courtauld Institute of Art.

Megan Fox Kelly, board member of the Association of Professional Art Advisors. She specializes in, and is a frequent speaker on, advising private collectors, museums, foundations, estates and trusts on buying and selling post-war and contemporary art. She is a U.S.P.A.P. certified appraiser, has a Certificate of Appraisal Studies from New York University, and holds an MA in the History of Art from Brown University.

Sean Kelly was trained as an artist, became a Curator, Museum Director and Director of the Bath International Festival in Britain. He moved to New York in 1989 and opened his eponymous gallery in 1995. A successful and edgy visionary with a political sensibility, Sean Kelly represents a paradigmatic group of contemporary artists including Marina Abramović, Antony Gormley, Rebecca Horn, Joseph Kosuth, James Casebere, and Kehinde Wiley. He is a member of the Art Dealers Association of America and is on the advisory boards of a number of educational and arts organizations worldwide.

Dr. Richard M. Lehun, Esq. is a founding member of the New York Stropheus Art Law collective, responsible for artist-gallery, consignor-auction house, agency, and other fiduciary relationships. He completed a doctorate in fiduciary law from McGill University while cross appointed as a Visiting Researcher at Harvard Law School. Richard Lehun has a Magister in Aesthetics from the Goethe Universität, Frankfurt am Main, and a fine arts diploma from the German Film and Television Academy Berlin (dffb).

Moderation

Judith B. Prowda, Esq. is an attorney, mediator and arbitrator focused on art law, copyright, entertainment and commercial law. She is Senior Lecturer at Sotheby’s Institute of Art and author of Visual Arts and the Law: A Handbook for Professionals (2013). She is Past Chair of the Entertainment, Arts and Sports Law Section of the New York State Bar Association, and is Chair of the Section’s Committee on Fine Arts and Co-Founder and Co-Chair of the Committee on Alternative Dispute Resolution. In addition, she is a member of the Art Law Committee of the New York City Bar Association.

Art Advising 2.0 – Vertigo & Accountability is a collaboration amongst Sotheby’s Institute of Art, the Association of Professional Art Advisors, and Stropheus Art Law.

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15 Minutes on Mediation of Arts related Disputes

Posted on November 18, 2014November 19, 2015 by Judith Prowda

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.

The Rise of NYC Art Fairs – NYSBA Event – Part 2

Posted on October 10, 2014November 19, 2015 by admin

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

Here in Part 2, an audio/video recording of Richard Lehun’s PowerPoint presentation can be found in the section on his presentation below. A dedicated audio recording of Nicholas O’Donnell’s comments also precedes his text.

Judith B. Prowda, Moderator:

In Part 1 we began with Gallerists Ed Winkleman and Elisabeth Dee. Ed offered 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. Elizabeth reported on the chances and risks that art fairs impose from her perspective as a dealer and a founder of an art fair.

Here in Part 2 our speakers are attorneys Richard Lehun and Nicholas O’Donnell.

Richard M. Lehun is a founding member of Stropheus Art Law, 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 to have completed a doctorate in fiduciary law, cross-appointed between McGill and Harvard Law School. He 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.

Nicholas O’Donnell 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.

Richard M. Lehun:

To situate our discussion let me quote Michaela Neumeister de Pury: “Whenever I hear about a new art fair starting, it is almost physically painful for me. The art world is becoming a Gypsy circus.” And Jerry Saltz, who I’m sure many of you know, categorizes the situation like this: “The downside, the beloved linchpin of my viewing life is playing a diminished role in the life of art. And I fear that my knowledge of art, and along with it, the self-knowledge that comes from looking at art, is shrinking.”

We’re in a situation where there are significant contradictions. By looking at ethics in my presentation, I’m going to be looking at contradictions. And what is an ethical problem? An ethical problem is when you have to make a choice between outcomes. Both outcomes contain good and bad, and you’re in a situation where you have to resource that decision, and you have to carry with your stakeholders the consequences of those decisions. This is an area that I spend a great deal of time with in my practice; trying to figure out what burdens on decision-making mean when there is no clear answer.

Art fairs are unavoidable, and they are a contradictory phenomenon, and contradictions increase complexity. The main problem is, the more complex things become, the fewer people can typically do something, or do it well. Those who can master the complexities profit immensely. Those who can’t, as our past panelists have repeatedly underscored, may be threatened with extinction. With the rise in the complexity comes an increased risk of failure, and not only of a financial dimension. The art context is a web of relationships. Those relationships have always been difficult, fraught with idiosyncrasy, failure, and injustice. I don’t think that the art fairs themselves bring an entirely new dimension of dysfunctionality. What they do is bring a different dynamic of dysfunctionality that people may or may not be adequately prepared for. So how do the art fairs affect these relationships? That’s what I’m going to try to cover in very few minutes.

I’m an attorney and my special interest is conflicts of interest. I want to know how we can best deal with these types of situations. I’m concerned about how stakeholders – this means artists, gallerists, collectors and museums – succeed or fail when confronted with contradictory needs and conflicted obligations.

Let’s look at some of these contradictions that affect specific groups.

We have the contradiction, that on the one hand, collectors and visitors value accessibility. This means they get to see a lot, and you get to see it in one place, and it’s very efficient. We know that collectors and advisors are time-poor. They want to consolidate research, search, and purchase. As Don Thompson wrote in The $12 Million Stuffed Shark, comparison shopping at fairs is easy. A single dealer might with difficulty get three Gerhard Richters to show a client. Dealers at Art Basel can show twelve of these at the same time. There is the impact of the herding element; that the sheer number of people and the sold stickers alleviate collector uncertainty.

Fairs are playing to the experience economy. People don’t just want to go one place and have one kind of limited aesthetic experience; they want to interact with a globalized jet-setting world where they experience something. Fairs replace quiet sessions in the gallery with a shopping mall, blending art, fashion, parties in one place. Collectors buy impulsively. They may never visit the gallery of the dealer from whom they buy at the art fair. With each fair, collectors become more accustomed to purchasing art in a shopping mall.

Okay, so that’s good for the collectors somehow, one thinks. Previously, collectors had to consider the interests of the gallery to gain access to works, and indirectly or directly, the interests of the artist, because they had to go through the gallerist, and behind the gallerist one assumes, in most cases that there was an an artist. Collectors are now rendered significantly less conflicted by art fairs. They have simpler choices. If we want to analyze what’s going on at that level, it’s not just the efficiency, it’s also something beyond that. Ethical choices of collectors are diminished by art fairs. Their lives and relationships are simplified. They can spend more money easily. This decrease in transaction costs seems like a benefit, but it also means that their virtual, idealistic investment is discounted. There is significantly less incentive to invest in the dealer and the artist. Even as the gallerist makes more money, social and contextual capital is being lost. The structural degradation of social and contextual capital is a significant structural downside of the art fair.

The art fair has a structural bias toward undermining the threshold investment of the collector in the artist and gallery relationship. Being able to see works on what may appear to be a level playing field ignores the fact that art fair politics, as has astutely been pointed out here, is no less determinate at art fairs than it is at galleries. But there is a difference here, a very important difference in the frame of reference. In their own gallery, a gallerist answers to stakeholders like artists, collectors, and others. At an art fair gallerists must uphold the fair’s standards and interests. A fair does not represent anyone. It does not have an agency relationship to anyone. If anything, it survives on visitor interest. As we saw in the previous slide, attracting collectors by lowering the ideal threshold investment makes money for the art fair and gallerist. The art fair cultivates and depends on these organic relationships, but it is structurally conflicted and motivated to removing barriers to trade by undermining those relationships. The art fair piggybacks on relationships, while needing to undermine them in fact.

We’re still on the potential benefits of the art fairs in terms of accessibility. But there are other important potential conflicts. You might be able to see a work at the fair, but is it for sale? Or is it for sale to you? Very difficult to know at times. The incentive in the old system of galleries to hang works that were pre-sold, borrowed, or otherwise unavailable to build the feeding frenzy was negligible in comparison with that of the art fairs. There is an obvious moral hazard here. What a gallerist may or may not have done in the confines of the gallery, where their practices were under scrutiny over time by a group of often knowledgeable actors, shifts dramatically under the pressures and opportunities of an art fair cycle.

Thus the lessening of the investments by the collectors is mirrored by a weakening of obligations by the gallerist. And in the first law of thermodynamics we know that that energy is going to go somewhere. And that loyalty is going towards the art fairs themselves, at the expense of other stakeholders. The problem, however, is that gallerists can’t have the same kind of perspective as an art fair, which is a money making machine essentially. The gallerists, contrary to art fairs, are often agents, representatives, and in fact fiduciaries of their artists. More on that in a second. Let’s look a little more closely at the structure of the gallerist’s conflict with art fairs.

I invite the audience to read these two quotes. Now, I’m going to refer to Matthew Slotover a few times, not because I have anything against him, or believe that he is a pernicious agent in the art world. Simply, he’s representing a perspective that is clear and necessarily differs from that of gallerists like Ed Winkleman.

„And of course, galleries are not obliged to do art fairs. Art fairs really exist for the galleries—the galleries are our clients, and we’re there to serve them. It’s up to them whether art fairs exist; if they don’t want them to exist all they need to do is stop participating and art fairs would immediately not exist. So I think there are a lot of things being confused here.“ Matthew Slotover, Artspace Interview, 2013

„Because getting into the right art fairs (or not) can truly change the fate of a gallery, dealers are spending more and more of their time strategizing and networking other influential art dealers.“ Edward Winkleman, How to start and Run a Commercial Art Gallery

Slotover obviously knows a lot about art fairs. What makes his opinion so glib here? He is not actually responsible to anybody. He can make it up as he goes along. He does not owe a duty of loyalty, so he can be as self-interested as possible without moral ambivalence. Ed, on the other hand, is a gallerist. He has a duty of loyalty and absence of conflict of interest regarding his represented artists. But if a gallerist cannot fill demand without being at art fairs, then serving Matthew Slotover’s doublethink becomes increasingly important.

I’m not going to repeat the figures about the necessity of art fairs to the dealer’s life, we’ve had enough of that. I will sum up with a blog quote: “The most expensive booth at the Frieze Art fair will go for $80,000, but the greater risk for dealers lies in not participating.” In conclusion, the costs and economic advantage of being at an art fair will reduce the ability of mid-range galleries to remain viable. The gallerists have the choice of embracing the new paradigm and its hidden costs, or risk their existence. This conflict of interest is having a profound impact on the art world as we speak.

So then, let’s talk about what this does to our artists. Again we have quotes from Matthew Slotover and Jeff Poe:

„You know, artists can make one work a year or a thousand works a year, and they make that decision based on what they are comfortable with, what their public desires are, what their credibility desires are, and how many great ideas they have. But artists are extraordinarily strong personalities in most cases—they’re not going to let their galleries tell them what to do because of an art fair.“
Matthew Slotover, Artspace Interview, 2013

“If they are any good, they make art because they have to. They don’t do it to please the market. So for some artists, hanging out here can mess with their heads. Also, let’s face it, this is not the optimum place to exhibit work. The subtle notes in artworks are drowned out by the cacophony.”
Jeff Poe, Blum and Poe

The mythical notion that artists can exist on idealism alone, and that their personalities are immune from being affected by market forces, is an act of willful blindness, self-serving towards the art fair ideology. And let me be clear, I am not here to do a cultural critique of art fairs. I’m here to look at the ethical conflicts involved, so that we can discuss them, so that decision makers at the art fairs can respond to them, as well as all other the stakeholders in the process.

It is clear that gallerists are by law fiduciaries of the artists they represent. The investments that galleries are forced to make in the art fair model impoverish their brick-and-mortar galleries, lower the collector’s necessary ideal investment, and lower their necessary investment in the collectors. This means that their ability to represent artists changes. Their role becomes one to broker access to art fairs, but the art fairs do not represent the artist. So, on the way to adapting to the new reality, potentially surviving and making more money, the artist’s reliance on the gallery is also reduced. What’s the point of a solo show, or gallery representation, when the gallery does not bring the artist to the only game in town?

In fiduciary obligations, the key thing is loyalty. So all gallerists that represent artists are fiduciaries, and the primary responsibility they have by law to those relationships is loyalty. One of the very special things about the artist-gallerist relationship is now being shifted by the art fair ideology. And we need to be aware of what that means.

Those who are perhaps less familiar with the definition of the fiduciary relationship are invited to spend a moment on the text of this slide and I’ll come to my conclusion.

Fiduciary concept’s central rationale is “nurturing and enforcing commitments to act loyally toward the interest of others […]”
De Mott, Fiduciary Obligation Under Siege: Contemporary Challenges to the Duty to be Loyal, 1992

“The principle of altruism requires that any conflict of interests between the parties […] must be resolved in favour of the beneficiary, who is entitled to the ‘single-minded loyalty’ of the fiduciary.”
Hoyano, The Flight to the Fiduciary Haven, 2011

Loyalty, pre-art fair, could mean a vast spectrum of different responsibilities. Loyalty post-art fair may mean little more than more art fairs. Post-art fair could mean for the gallerist being nothing but a broker for the art fair ideology. This fundamentally reduces the scope of what a gallerist needs to provide, and in fact, they may fail as a fiduciary if they don’t produce this outcome. What used to be a fiduciary obligation in a broad sense to the potential of an artist’s career etc, shifts as gallerists become conflicted by the obligation to bring that represented artist to a fair, or they’re not doing their jobs, while the at the same time undermining their very relationship to that artist and their collectors.

This makes the gallerist’s life more complicated. It will become much harder to balance interests. At the same time, not chasing the money will not be an option. So there is no going back to the past practices. It’s a damned if you do, damned if you don’t situation.

And the artists are also not unaffected. They must be complicit to survive. This is why I say, those who care about what they do have to sit down and go through these questions carefully. The whole point of thinking of things in fiduciary terms is to treat certain ethical questions as more than just happenstance.

There’s no time like the present, and in fact there will be no time like the present, to take a moment to strengthen our capacities with these ethical issues. Thank you for your attention.

Nicholas O’Donnell:

Good evening everyone. First I want to start by thanking Judith and Richard for inviting me and to Ed and Elisabeth. It’s really great to be here, and for their thoughts. It’s really a privilege to participate. I’m going to talk little bit about relationships.

The interaction between a client and a dealer, whether at a brick and mortar gallery, or an art fair, is the commencement of a legal relationship. It might be a successful relationship, it might be strained, but that’s what it is. So what I want to talk about tonight are some of the ways that the formation of that relationship, and its rights and duties, might be affected by the fact that it is happening at an art fair. My focus is going to be on US and NY law given my practice, but hopefully we can issue spot on things that can arise around the world.

It seems obvious, but the starting point is to remember where you are. In the absence of an agreement, in most instances for the sale of art the place of the transaction will supply the law that governs that transaction. So New York law will govern Frieze, Dutch law will govern TEFAF, and Hong Long law will govern Art Basel Hong Kong.

The nature of an art fair also creates practical differences in the formation of that relationship. Consider: every art sale involves some sort of diligence, whether cursory on the spot or in depth, a negotiation of the essential terms of the transaction, and an actual exchange. A contract, after all, is an exchange of promises: I will do this if you do that. But every contract has explicit terms and implied terms, and the practical aspects of an art fair, and the law of the place where it is, will all go into what constitutes the resulting agreement.

Diligence and preparation. What does the buyer have time to investigate, and what are the consequences of proceeding with the transaction?

This is as much a matter of risk management as it is a legal question. But whether you are a dealer at a show or a buyer, your starting point has to be the rules of the show. Is there anything in the materials in which a buyer agrees to a set of terms incorporated by reference? That is, when you attend or pay for something, do you end up signing a form that says something like “buyers agree to abide by the rules of the X show”? If so, those rules will be a part of your deal.

If you are a dealer, the same will hold true most likely at the application stage. Even without a single buyer, the dealer is probably setting foot more firmly in the location of the fair. Art Basel, for example has a choice of law provision in its application form in favor of the location of the particular show (Canton Basel, Florida, Hong Kong).

What is it? What representations and warranties are inherent to a sale, and how does the dynamic of an art fair complicate how you can rely on what you have been told?

If you’re in a Uniform Commercial Code (UCC) jurisdiction, like New York, the mere exchange of information will give rise to enforceable obligations related to that exchange if there is ultimately an agreement.

UCC 2-313 provides that

(1) Express warranties by the sellerare created as follows:

(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goodsand becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.

( c ) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goodsor a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.

We can well imagine how this will play at an art fair rather than a gallery. Hundreds of people are passing a booth each hour. Routinized conversations ensue. The sellers give a standard litany of descriptions-they think, if they can remember. Buyers have spoken to dozens of people that day. Was it this dealer, or another, that talked about the condition of the paining or the location of origin. Which conversation becomes “part of the bargain”? So where advance homework is wise in a storefront, some system for noting what you heard from whom—or what you told whom—may matter if and when a deal is struck.

To illustrate the point, imagine a buyer who attends a fair of rare cars on Long Island. He talks to several sellers at the fair, but he is taken with one conversation in particular. This Chrysler LeBaron, he is told, belonged to a certain specific individual. Because of that, he buys the car in a handshake deal. The handshake representation about who owned it? “John Voigt.” You may well laugh at the idea of being as senseless as George Costanza, but the larger point is that once you shake hands, exchange promises, make a deposit, or otherwise commit yourself, what happened in that one conversation among many could turn out to matter a great deal.

Consider a less ridiculous scenario. In a conversation at a booth, the buyer observes a signature at the lower portion of an etching that looks to her, a sophisticated buyer, to be Picasso’s. She asks the dealer, what is that? “That’s signed Picasso” he says. Or did he say “that’s signed BY Picasso?” or did he say “that SAYS Picasso”? Do either remember accurately. The buyer purchases it. In a way that is so much less likely with an auction catalogue, there is now an issue with WHAT 2-313 warranty was made. This scenario happened to a client of mine in a more old fashioned context, and the particulars were more easily sorted out, but the dynamic of the show makes it one to look out for.

Here too geography will matter of course, and whether a civil law or other jurisdiction implies warranties into a contract like this. Many don’t.

Before we leave this topic, remember that an expression of VALUE is considered an opinion, and not a statement of fact within 2-313 or other law. But a claim of comparable sales is an expression of fact.

Did you make an agreement?

Let’s take a step back and talk a little about the basics of contract formation in this context. With apologies to the lawyers in the room who have done their best to forget about first year of law school, it is worth repeating that an agreement does not consist of what you think it meant, it consists ordinarily of the objective manifestation of the parties’ respective intent to be bound.

The New York Statute of Frauds, Gen. Obligations Law § 5-701, like most, requires that any agreement must be in writing to be enforceable if “By its terms is not to be performed within one year from the making thereof or the performance of which is not to be completed before the end of a lifetime.”

The key thing to remember here is not whether it IS performed within a year, but whether it can be.

So contrast: a visitor from a civil law jurisdiction sees a contemporary work at Frieze. She has a structured payment coming to her own business, so she needs some time to make the full payment, but she is willing to commit. So she says I’ll give you 50% now, 30% in six months, and the rest a year from today, after which I’ll pick it up. The dealer, happy to obtain 80% within six months, agrees. She’s never heard of the Statute of Frauds. But six months later he’s heard nothing, and he sues. Strictly applying the statute of frauds, he should win, right? Strictly, no. a year from today is not within a year. Cases have gone to court over this issue, and the party seeking to enforce the agreement has not always prevailed. Good news for them recently, although addressing a different aspect of the Statute of Frauds concerning auctions (this is the Jenack case), the New York Court of Appeals reserved some choice words for relying on the SOL disingenuously:

It bears repeating in such a case as this that: The Statute of Frauds was not enacted to afford persons a means of evading just obligations; nor was it intended to supply a cloak of immunity to hedging litigants lacking integrity; nor was it adopted to enable defendants to interpose the Statute as a bar to a contract fairly, and admittedly, made.

But here, seller in particular, beware.

I started by teasing out some of the geographical implications on the choice of law that might apply to an art fair transaction. But, as I like to phrase the foundation of all legal questions: so what? Who cares where the fair is?

With regard to the most important aspect of any sale, title to the object, you will care a great deal. Consider again a pair of scenarios, different only in geography.

First, in New York at an art fair views a striking Max Beckmannn domestic scene on consignment from an identified and reputable seller. He views its condition, and notes its presence in the catalogue raisonné with approval. The provenance provided is orderly and has no gaps or suspicious activity. He buys the painting for $25 million, which is noted in the local and international press.

Two weeks later, he receives a letter from a lawyer. The painting, the lawyer argues, was sold at the auction at Galerie Fischer in Lucerne in 1939 after being looted from a Jewish family in Frankfurt. The provenance he was given was fictional; the catalogue raisonne confused this work with another version. The lawyer’s client wants the painting back. Oh, and the reputable and known seller has gone bankrupt and fled to Zimbabwe with our buyer’s money.

Now imagine the same scenario, but at Art Cologne. What happens, and why does it matter?

Assuming that the buyer really did not know of the painting’s history, the location will not only be important, it will probably be dispositive. In New York and elsewhere in the United States, a thief cannot pass good title. So purely as a matter of title, the buyer will lose the painting. He may have some defenses like laches if the true owners knew of the painting’s intermediate location and failed to act, but that is necessarily an uphill battle, and his burden to prove AFTER a trial.

In Cologne, or Maastricht? More than likely, as a good faith subsequent purchaser, he will keep it. Even within the western art market, an increasingly seamless one, different places make different judgments about who should bear the risk of loss in that situation.

World War II looting isn’t all that matters by location. Assume fairs in the same two locations, New York and Cologne, but for a Giorgio di Chirico. The same facts apply, but assume that in 1955, the true owner had located the painting in a Geneva gallery, sued for its restitution—and lost to a “good faith purchaser.” Now, even in New York, the seller is not passing a thief’s title, he is passing adjudicated good title. So the buyer may get the painting after all.

Lastly, assume the di Chirico hypothetical: but fair number two is in Rome, where just last week, a new government passed a law declaring all Italian metaphysical art to be the national patrimony of Italy.

The buyer in New York may now be better off. Unless it was imported to the US AFTER the patrimony designation (in which case there could be customs problems, and a visit from the Asset Forfeiture Unit of their friendly local U.S. Attorney office), it’s here and it’s probably not going back. But within the EU? That jurisdiction that favored good faith title may be out of luck.

So, to foster the discussion, remember: where you are will affect whether there is a relationship, and how it plays out in the short term, and if people ever disagree. Thank you very much.

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

Posted on September 13, 2014November 19, 2015 by admin

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

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

Good 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

I 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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15 Minutes on Infringement and Fair Use

Posted on June 24, 2014November 19, 2015 by Judith Prowda

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.

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:

Whether such use is of commercial nature or is for nonprofit educational purposes
Whether the work is transformative (a mere photocopy is not transformative)
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.

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

Posted on May 20, 2014November 18, 2015 by admin

Art Fairs: An Irresistible Force in the Art World?

Tuesday May, 27^th2014

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

Posted on May 5, 2014April 24, 2017 by Judith Prowda

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.

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)

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

Posted on February 11, 2014November 18, 2015 by Richard Lehun

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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College Art Association Report on Copyright and Fair Use

Posted on February 3, 2014November 19, 2015 by admin

The College Art Association (with a membership of 13 000 practitioners) is the principal professional association in the United States for practitioners and scholars of art, art history, and art criticism. Members consists of academics, professors, and graduate students who study and/or teach art practice, history, or theory, including visual arts, visual culture, and aesthetics. The CAA represented through

• Patricia Aufderheide, professor, School of Communication, and director, Center for Media & Social Impact, American University
• Peter Jaszi, professor, Washington College of Law, American University
• Bryan Bello, graduate fellow, Center for Media & Social Impact, School of Communication, American University
• Tijana Milosevic, graduate fellow, Center for Media & Social Impact, School of Communication, American University

released the following report as part one of a four-phase plan to develop a Code of Best Practices for Fair Use in the Creation and Curation of Artworks and Scholarly Publishing in the Visual Arts:

(Excerpt)

The visual arts communities of practice share a common problem in their confusion about and misunderstanding of the nature of copyright law and the availability of fair use. Their work is constrained and censored, most powerfully by themselves, because of that confusion and the resulting fear and anxiety.

The visual arts field is pervaded with a “permissions culture,” the widespread acceptance that all new uses of copyrighted material must be expressly authorized. This assumption has taken its toll on practice in every area of the visual arts field, adversely affecting the work of art historians, museums, publishers, and artists. As digital opportunities emerge, old frustrations with this permissions culture have taken on a new urgency.

The permissions culture is expensive in terms of both money and time, but artists and other professionals in this field rarely embrace the copyright doctrine of fair use: the right, under certain circumstances, to use copyrighted material without permission.

The reasons why visual arts professionals ignore fair use include:
• an exaggerated assessment of risk, because of a lack of clarity around interpretation of fair use, lack of copyright knowledge generally, and excessive fear of litigation
• the importance attached to maintaining good relationships with individuals and entities who hold, or claim, rights
• a determination to honor artistic creativity, the generative force for the entire field

But many in the field need to access copyrighted work without permission in order to accomplish their professional missions.

In the absence of confidence regarding how to take advantage of the right of fair use, professionals cope by overspending on permissions; delaying projects for months, years, or even decades to negotiate permissions; compromising projects by doing without important material; and even abandoning some projects altogether.

In fact, while permissions may be required for some kinds of artistic and scholarly projects, in many cases they are not. The pervasive permissions culture, exercised as if fair use were not available to the visual arts communities, changes and even deforms the work produced. These losses affect future generations and the future of the field itself.

Uncertainty about copyright and fair use within the visual arts communities is a problem that the communities themselves can address. The biggest single issue for professionals is understanding their rights as new users of existing copyrighted material. This can be remedied not only by educational projects but by the formation of a consensus within the communities of practice about the shape of a code of best practices in fair use for the visual arts. Such codes have vastly improved access to fair use for other communities of practice.

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Judith B. Prowda

Sean Kelly

Richard M. Lehun

Art Advising 2.0 : Vertigo & Accountability

Panelists

Moderation

Mediation Distinguished

What is Mediation and How Does It Compare with Arbitration?

How is Mediation Different from Litigation?

Litigation

Mediation

Control over the Mediation Process

Creative and Durable Solutions

Cost and Time Effectiveness

Less Stressful and Emotionally Burdensome

Confidentiality

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

Preservation of Relationships

Pre-Mediation Contract

Mediation may not be appropriate in some cases

How does mediation work in practice?

Scenario of an Artist-Gallery Dispute

Hypothetical Contract Terms

First Year

Second Year

Comparing Approaches

Litigation

Meditation

Conclusion

Further Reading

Judith B. Prowda, Moderator:

Richard M. Lehun:

Nicholas O’Donnell:

Judith B. Prowda

Ed Winkleman

Elisabeth Dee

What is copyright infringement?

What is fair use?

First Factor

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

Second Factor

Third Factor

Fourth Factor

Rogers v. Koons

Campbell v. Acuff-Rose Music, Inc.

Blanch v. Koons

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

Appellate Court Decision

First Factor

Fourth Factor

Second Factor

Third Factor

Five Remanded Works

Further Proceedings

Conclusion

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.

First, what is copyright?

How long does copyright last?

What is the public domain?

Copyright a Constitutional Right

Copyright has an Economic Purpose

Formalities

Requirements

Works Protected

Useful Articles not Protected

Ideas are not Protected

Merger Doctrine

Originality

Fixation

Bundle of Exclusive Rights

Right to Reproduce

Right to make Derivative Works

Right to Distribute

First Sale Doctrine

Right to Perform

Art Advising 2.0 :
Vertigo & Accountability

Tuesday May, 27^th2014