Resale Rights Royalties For Visual Artists

Musicians and writers can continue to profit from their creative works through copyright and licensing laws, but  until recently in Australia visual artists, have not been entitled to any benefits after the initial commercial resale of their works.

Changes to the law which came into effect on 9 January 2010 mean visual artists whose works meet certain criteria will qualify for resale royalty rights on the secondary sale of their works.

The Resale Royalty Right for Visual Artists Act 2009 (Cth) provides for the payment of  resale rights on the secondary commercial resale of a visual artwork.

This was considered fair particularly given the substantial difference between the price paid for a piece of art upon first sale and years later.

Visual artists are now entitled to receive a royalty on the secondary commercial re-sale of their work during the artist’s lifetime and for a period of up to 70 years after their death as long as the work sells for $1,000 or more. The royalty payable will only be applicable to the commercial re-sale of artwork acquired after the commencement of the legislation. The royalty is payable at the rate of 5% and the sale price of the artwork, including GST but excluding any buyer’s premium or other taxes.

To qualify under the regime an artwork must be an original work of visual art, which includes but isn’t confined to paintings, photographs, drawings, multimedia artworks, pictures, prints, digital artworks, video artworks, collages, tapestries, lithographs and sculptures.

The Copyright Agency Ltd (CAL) will be responsible for administering the royalties payable and the sellers of an artwork must give CAL notice within 90 days from the commercial resale, after which CAL can request any further information necessary to determine whether a royalty is payable. The notice must include enough information to evaluate whether a royalty right ispayable, to whom it is payable and the amount payable. The royalty right can’t be assigned, sold or charged by an artists and is not available to creditors in the event of the artist’s bankruptcy. An artist cannot enter into an agreement to waive the royalty right or to share or repay it, and any such agreement will be null and void.

The definition of artwork includes many different forms of original artistic works and the examples given aren’t exhaustive, as the intention is to make provision for new types of visual artistic expression. However architectural works, including drawings and plans or models of a building are excluded specifically from the definition of an artwork under the legislation.

Only artworks which artists have a limited ability to exploit financially are included in the regime, therefore works of art which can be mass-produced such as posters, mass-produced photos and other prints, films and industrial designs are excluded from the new scheme. However if an artist produces multiple original artworks in a limited edition the artists will be covered by the Act.

To qualify as a commercial resale, means when an artwork is transferred to an art market professional for financial consideration. An art market professional includes an auctioneer, the owner or operator of an art gallery or museum, or a person who deals in the sale of art. Managers of major private or corporate art collections are also caught by the Act. If someone engages in the dealing of art on a regular basis they will also be caught under the Act, even though this is not their primary business, such as an antique dealers who sell other items apart from artwork.

After the legislative changes, which brings Australian law into line with other jurisdictions which have similar schemes, those operating in the art industry must record all arrangements with artists in relation to the transfer of art, and make arrangements to pay any applicable royalties to CAL. The decision as to who will pay the royalty where there are agents involved in the second transfer of the work can be determined by contract but there are provisions to render parties to the sale jointly and severally liable where this isn’t set out contractually.

In terms of who is entitled to the royalty, where a single artist is involved in producing the work, is identifiable and living at the time of the commercial resale of the artwork the artist will be entitled to the royalty provided they satisfy the residency test applicable to copyright works. Where the artist isn’t alive at the time of the re-sale it will be held by their successors in title.

The Act has been perceived as an important step forward for visual artists in giving them some ability to exploit their creative works beyond the first commercial sale of their work, allowing them to derive financial benefits from the future sales of their work which can often be very significant, but which they deprived from sharing in.

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10 Responses to Resale Rights Royalties For Visual Artists

  1. John R Walker says:

    The information in this post is incorrect in important details. Under Clauses 22 and 23 of the Resale Royalty legislation, artists may instruct CAL (Copyright Agency Limited) to NOT collect the royalty on each resale. CAL is effectively required to seek consent from the individual artist before collecting any payments.

    For many artists, maximising first sale prices is a far better option than gambling on the possibility of resales when they (the artists) are probably dead.

    The Australian scheme was viewed by the legislators to be too tax-like to be part of the Copyright Act and is therefore sui generis. Copyright is always a purely OPT-IN system (not an opt-out system, which is what the resale royalty legislation is).

    Limitations and restrictions on the exclusive individual right of control that is copyright need to pass the 3 step-test, otherwise known as the Stockholm Convention incorporated within the Berne Convention. There is no wide community benefit in these resale schemes. The vast majority of payments are to people who are either dead and/or famous. In the UK, 48% of all the money collected has been paid to just 20 individuals.

    In Australia, the scheme has so far cost approx. $1.5million to administer and has delivered $165,000 in payments this financial year. It is an absurd make-work, scheme for arts managements with significant negative impacts upon artists’ primary sales income. The $165,000 collection by CAL equates to a gross market of $3.3 million. Prior to the scheme’s introduction, the gross of the indigenous arts centres was approx. $15 million. The scheme is harmful, nonsensical rubbish. It is a significant restriction of artists’ terms of trade and represents a significant cost to the Australian community. If the government had simply handed over $1.5 million directly to 800 indigenous artist (those that have been paid resales), the artists would have received 10 times as much as they have under this management make-work scheme.

  2. admin says:

    Thanks for your input, particularly on the actual costs of administration of the scheme so far in Australia and the likely beneficiaries of the scheme.

    This is not intended as commentary on the merits of the scheme.

    I appreciate that there was a lot of controversy and opponents to the scheme over several issues.

    As you point out there are opt-out provisions for artists who don’t wnat to partake in the scheme. S28(1) of the Act merely prescribes the notification procedures which apply for those who do want to participate.

    s22 requires the collecting society to publish a notice on its
    website as soon as it is reasonably practicable after becoming aware of the commercial resale of an artwork if they reasonably believe an entity may hold the resale royalty right, or an interest in the right upon a commercial resale.

    The publication of the notice merely allows the resale royalty right to notify the collecting society under s23 that it doesn’t want CAL to collect the resale royalty on the commercial resale, which the artist can do within 21 days of the notice being published.

    Appreciate there was a lot of controversy in the submissions put forward by stakeholders to the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts.
    Agree that the turnover on artwork is so long that it will take a long time before all artists will derive benefits from the resale of their work, and taking into account the factors you put forward regarding the costs of the administration the benefits to artists could be minimal and as you point out harmful to Australia’s art market, particularly indigeneous artists (particularly if the costs of administration impact upon primary sales income of artists)

  3. admin says:

    So they took $3 million gross of art, they took $1.5 million to administer it, to deliver $165,000 benefits. This means one quarter of the industry is government work administering it. The indigeneous arts alone amounted to five times that before. Basically they are running the industry into the ground, wasting vast amounts of money at the expense of Australian and indigeneous art. A very fat bureaucracy if they take up a quarter of the industry they are regulating. It really is disturbing because I think they have a tendency to judge what is good art and what is not, not a good thing for Government to be doing.

  4. john r walker says:

    Thanks for your posting my comments.

    Resale Royalties are of doubtful net value to artists. In 2004, the collection agency Viscopy commissioned Australia’s highly respected economic modelling agency, Access Economics, to model the likely impact of the fully retrospective, and very draconian scheme, that Viscopy was lobbying for. In this report, Access Economics warned that the claim of net benefit to artists was: “based upon extremely unrealistic assumptions, in particular the assumption that seller and buyer behaviour would be completely unaffected by the introduction of RRR [ARR]” and that, “Access Economics considers that the results of this analysis are both unhelpful and potentially misleading” (see Access Economics’ report). Viscopy suppressed this report.

    The harm caused by such schemes is in the form of what doesn’t happen, and therefore the harm is easily overlooked and underestimated. When an artist, such as myself, sells a painting for $10,000, I pay $4,000 to the costs of sales and marketing (through my representative agent) and retain $6,000 as income. In the case of $10,000 resale, I would receive $500 (according to the Australian scheme with its flat 5% rate). If buyer nervousness about the resale royalty, was to cause me to lose just one $10,000 first sale (on the primary market), I would need the royalty owed on $120,000 of future resales to recoup the lost income of that one primary market sale. These are very unattractive odds.

    Lastly the idea that artists may, by law, not return the money is an interesting idea- as best as I know I as an artist, do not have to seek government permission before giving money to anybody.

  5. admin says:

    Thank you for your input which is valued.

    I can see how misplaced the assumption that the scheme wouldn’t affect buyer behaviour is, and how oppressive the regime would have been particularly had it been introduced retrospectively with no opt-out.

    I have been reading more about the background to the implementation of the scheme and thank you for highlighting the suppression of the report commissioned by Access Economics.

  6. john walker says:

    Thanks…
    The advocacy for these resale schemes has never been by artists who make and sell art for a living, rather it has always been driven by the collective managements who would get very well paid to manage their schemes.

    The link for the Access report :http://www.arts.gov.au/__data/assets/…/Viscopy_Access_Economics.pdf

    and link to a post we made on the 1707 blog (part of the IPkat net)
    http://the1709blog.blogspot.com/2010/12/artist-resale-royalty-harmonisation-and.html

  7. john walker says:

    a small Correction
    The blog is the 1709 Queen Anne act, blog .

  8. admin says:

    Thanks for the link to your great blog. The more I have read about the resale royalty right the more cynical I become. What seems in principle like a laudable proposal is in reality a market destructive idea promoted by bloated arts bureaucracies seeking compulsory management fees. It is disturbing that the $66K Access Economics Report was suppressed, but even more disturbing that experienced art practitioners and industry experts who were very vocal in their opposition to the RRR were largely ignored. Being within the art industry you and other artist would best understand the commercial implications and are best positioned to evaluate whether the resale royalty scheme could harm artists, art buyers, and art galleries. I note that Indigeneous art centres were also expressing anxiety about the impact on indigeneous artists due to the anticipated softening of demand and downward adjustment to the sale price of works. I also read the submission of Stanford which made sense even to an outsider like me re: the marginal utility of the prospect of receiving such small payments in the future and the failure to take into account the immediate needs of artists to derive income from sales to sustain them. When gallery owners and art buyers start to consider abandoning or curtailing their trade in Australian art after the introduction of the legislation, the reality of that unquantifiable impact on the art market hits home. I wonder whether it is possible that prospective buyers will transact in foreign markets where there is no royalty scheme instead? As you point out it is the impact on buyer behaviour which is that critical incalculable factor which could have a devastating effect upon artist’ sales in the primary market and a flow on effect on the industry as a whole. This impact is all too easy to just assume, but one which cannot be ignored. It appears from what I have read that experiened artists and industry experts have opposed the scheme for years and put forward compelling well constructed arguments. Yet they don’t seem to have been given the recognition they should have been accorded in the debates. Although the analysis by Access Economics implied that realistic assumptions about forecasts can’t be made without proper empirical data, the tenor of the report seemed to be that the RRR would provide no benefit for younger generations of artists. The only credible rationale for RRRs as a separate scheme would be copyright recognition which, as you have pointed out in your submissions, is an economic right, a proprietary right which is inalienable, and can’t be waived, sold or just transferred to another party. A right which doesn’t have attached to it a right to control the usage of a work is not consistent with copyright. It is starting to look like this RRR was intended to be some kind of private transaction tax. The initial draft of the scheme which didn’t allow for opt-out, amounts to a retrospective seizure of property rights. It is far more desirable to have the opt-out provisions so buyers have more confidence in purchasing artworks. However buyers who aren’t dealing with artists who forego the RRR, will be left with a caveated title to the works they purchase. Anything that creates uncertainty has to have an adverse impact on primary sales and sale price. It just seems logical. From what I have read so far I couldn’t see any evidence that royalty schemes do anything other than reduce the price of new art, and are wasteful and costly to administer. I think I also read what appeared to be a few mischaracterisations of how the scheme had worked in Europe and the UK by proponents of the scheme. It is clear the RR scheme has bever been supported by artists who are actually involved in making and selling art as a career. If I recall correctly 50-60% of artists were quoted as being opposed to the scheme. This led to me to question who were ‘speaking’ for artists. I discovered in my readings that perhaps I had been under a misapprehension as to who was purporting to represent ‘artists’ or advocating for the ‘art industry’. The RRR could decimate an entire generation of artists, and have a detrimental impact on both the quality and marketability of art. It seems clearer who the scheme was driven by and whose interests were advanced by it’s introduction. The interests of professional artists were not represented in the proposed scheme. It started to make me wonder about the government funding of arts in Australia in general where I also saw several examples of grants intended for artists which were largely consumed by management fees.

  9. john walker says:

    I could not say it better. It is reassuring how quickly you have grasped the reality of what we have been dealing with.

    The scheme has done real damage, mostly because of the perception that the current government has an ignorant, and possibly hostile, attitude towards art. The RRR is just one of a number of arts policy initiatives that this government has recently undertaken that seem to be based in a lack of curiosity and/or malice. For example, the Cooper Inquiry in Self Managed Superannuation schemes was very leaky. Therefore, for more than six months before the Inquiry report was released, there was widespread uncertainty based on the knowledge that one of the key recommendations ruled out art as part of SMSF portfolios and worse still, that there be a forced fire sale of 1/2 billion dollars worth of art works already in these super funds. This would have utterly destroyed the industry.

    In an interview in June 2010, Mr Cooper (and one of his commissioners) stated that the Inquiry had not consulted with the art industry about the possible side-effects of their recommendations. The reason given was an example of instrumentalist logic in that “we were only commissioned to inquire into superannuation”. In short, many people reasonably feel that this government has something against art and that it is probably better to avoid it (art) for the time being. In art markets, buyer and seller confidence is particularly important. It has real value and consequence.

    The strange thing about the Australian government’s stubborn pursuit of the RRR is that the evidence that the advocates of the scheme were deeply mired in conflicts of interest, moral hazard and totally disconnected from the real art industry should have been clearly visible to the government and its advisers.

    The National Association for the Visual Arts (NAVA) was the officially funded peak industry body that endlessly lobbied for the scheme. This organisation is a phantom: less than 12% of its income actually comes from members. The bulk of its income comes from other government funded arts management organisations (such as the Australia Council). NAVA and the collection agency, Viscopy, are very closely twinned, sharing foundational chairpersons, directors and board members. In a submission to DCITA (major federal government department responsible for the arts)in 2004, NAVA actually stated that a major benefit of a compulsory monopoly scheme was that it would grant Viscopy “an appropriate level of income for its administrative services” and an expanded level of activity.

    In October 2008, NAVA was scathingly and very publicly sacked from its role in drawing up the Indigenous Code of Commercial Conduct, because of, in the words of the then federal Arts Minister, Peter Garrett “widespread failure to consult”. NAVA was forced to return the residue of the public funding that it had been granted for this project. In other words, the government was well aware by October 2008, that the chief representative body lobbying for the RRR was a phantom sham and the government should have been well aware that the indigenous sector knew little or nothing about this so called ‘important’ benefit. And yet the government persisted with the legislation and rapid implementation.

    A cynic might suggest that this was deliberate as in giving a bunch of annoying lobbyists a empty recognition that would shut them up. In the end, Viscopy did not win the tender for the implementation of the legislation. NAVA, these days, is a more compliant peak industry body.

    The Constitutional and legislative obstacles to implementing a compulsory monopoly scheme are very real and known for decades.
    Access Economics Report of 2004 also pointed out that retrospective application in Australia was exceedingly rare. It does not fit the political culture and there are real constitutional issues. The advice of the Commonwealth Solicitor General was very clear that there were real risks if the scheme had been retrospective; as in uncalculable compensation claims. It is an area where there is no case law to guide judgement.

    Regarding compulsory, duty-like rights, the High Court majority ruling in 1991 on the ‘Blank Tapes Levy’ found that that scheme was too tax-like to be part of the Copyright Act (under section 55 of the Constitution). The compulsory collection advocated by compulsory collectives makes the payment of management fees, by artists, a duty; an hypothecated tax to the costs of the management of the scheme.

    ‘Private transaction taxes’ as you have stated, and also known as hypothecated taxes, are absolutely toxic in Treasury’s view. In other words, the sort of compulsory monopoly model advocated for by the various collection groups was, in Australia, legislatively and constitutionally optimistic, to say the very least. The passage of the actual legislation was ‘uncontroversial’ and it is unlikely, I hope, that it will go any further. The actual legislation is not part of the Copyright Act, not compulsory, not retrospective and artists may also, after notifying CAL not to collect on their behalf, make their own individual arrangements. CAL is simply the only permitted collective collection agent.

    The combination of the opposite intentions of taxes and individual economic rights will always result in chimera; an impossible illusion that does neither purpose well. There is one last paradox about this business. Personally, the then government and its advisers treated us with respect and courtesy and paid more attention to what we had to say than I could have reasonably expected. Why the government persisted with implementation of this scheme remains beyond me. I am reminded of Emerson’s words about England at the peak of its world power in 1850 and his sense that this power had corrupted and was leading to an inevitable decline: “they seem to exist in a kind of sub mind” and “exercise all skills at a secondary level”.

  10. john walker says:

    An addendum:
    The fixed transaction costs of collective managements are genuinely high. CAL (Copyright Agency Limited) is a professional organisation. In an Annual Report a few years ago, it stated that its fixed transaction costs (for payments of royalties to writers etc) were of the order of $50. Recently CAL flew to Alice Springs and then drove for 4 hours to deliver a resale royalty cheque to an artist. These things are not cheap.

    NAVA and Viscopy successfully argued for the collection threshold to be set at $1,000, which equates to a royalty payment of $50 in total. Obviously the economic to deliver threshold for the RRR is something like $3-5,000. I believe it was the intention of Viscopy and NAVA to collect a lot of uneconomic to deliver royalties that could eventually be redistributed as NAVA and Viscopy saw fit.

    In Germany and central Europe, taxes on the resale of art, hypothecated to various artists societies, have a long history and continue to this day. I believe the real harmonisation issue in Europe is between the English speaking conception of royalties as an individual economic right and a continental European conception of duties paid to official cultural authorities. Many funded arts groups in their submissions to the Myer Inquiry openly advocated a tax on the resale of art to fund arts groups. Myer rejected such proposals because, ‘severing the nexus between individual consent and individual payment’ introduced an hypothecated tax-like quality.

    In the face of this rejection, these groups set out to achieve a tax by deception.

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