How (droit de) suite is it?

A promising young artist sells her work to a supportive collector for a modest price. Subsequently, the artist’s career develops, with the support of a good gallerist, and prices for her work rise steadily. A number of years later, the collector sells the piece at auction, earning a handsome profit, which, of course, the collector pockets while congratulating himself on having such a good eye and making such a shrewd purchase all those years ago.

It is a story that is common across the art world, and in particular in the contemporary Asian market, which has developed at a meteoric pace in recent years compared to mature Western markets. Even for established midcareer artists, the secondary market prices now quickly outrun those on the primary market. This leaves both the artist and the gallery in something of a dilemma: if they “chase” the auction prices for sales of new works, they risk unsustainable prices and ultimately a ruined career. If they do nothing, the sense of frustration at money “left on the table” can demotivate artists and strain relationships between artist and gallery.

The inequity is clear: why should the artist do all the work and the collector reap all of the financial reward? The law has a means to address this problem: the visual artist’s resale royalty right (also known by the French term droit de suite, or “right to follow”). The concept is quite simple: when an artist’s work is sold on the secondary market, a percentage of the profit derived from the sale is paid to the artist during his or her lifetime, and to any heirs for a fixed number of years after the artist’s death.

Artist resale royalty laws are not universal, and have been enacted in various countries in different forms. In Europe, a European Union Directive requires all EU countries to introduce artist resale rights legislation. For example, in the United Kingdom, the rules on artist resale rights provide visual artists and their heirs with a royalty each time a work is resold in the secondary market by an art market professional such as a gallery, art dealer or auction house. The royalty rate is based on a sliding scale from 0.25 percent to four percent, and is subject to a cap. In order to qualify, the artist must be a national of a European Economic Area state or of a state whose laws provide for similar resale rights for artists.

In the United States, California is the only state with artist resale royalty laws. The California Resale Royalty Act provides that a seller of art in the secondary market must pay a resale royalty of five percent if the seller resides in California or the sale takes place in California, as long as the artist is a US citizen or Californian resident. The work must have been sold by the seller for a higher price than he or she originally paid, and for a gross price of more than USD 1,000. However, anecdotal evidence suggests that many artists are ignorant of these rights, which are not consistently adhered to by art dealers in California, although auction houses do comply.

Australia has a resale royalty scheme under which artists receive a five percent resale royalty when their works are sold through an art market professional in the secondary market for a price of AUD 1,000 or more. This Resale Royalty Right applies only on those resales in which the seller originally acquired the work after the resale royalty legislation took effect in 2010.

In Asia, China is the only major jurisdiction currently contemplating introducing such legislation. In draft amendments to the nation’s Copyright Law currently being considered by Chinese legislators, artists and their heirs would be entitled to a share of the profits when an artwork is sold at auction. The proposal states that the rules will also apply to foreign nationals if their home country offers similar reciprocal rights to Chinese artists. The draft law leaves details such as the royalty rate and implementation mechanism to be drafted by the government separately. Given the size of the Chinese auction market, these rules, if enacted, may have a significant impact.

However, even where the laws of the land do not provide for an artist resale royalty, this does not leave artists without hope. One alternative is a contractual artist resale royalty. Many galleries already incorporate resale restrictions into their sales contracts: these will generally provide that if a collector wishes subsequently to sell a work, he or she must first offer to sell it back to the gallery. This enables the gallery to manage the supply of an artist’s works onto the secondary market. It would in theory be a straightforward matter to add an additional clause to such contracts requiring the collector to pay a resale royalty to the gallery upon subsequent sale.

New York attorney Robert Projansky tried to provide a means for doing just this in the early 1970s, when he and curator Seth Siegelaub produced a standard form “Artist’s Reserved Rights Transfer and Sale Agreement.” The agreement, available for free, is designed to give an artist 15 percent of any increase in the value of a work each time it is transferred, and certain controls over subsequent transfers and uses of a work. However, the agreement—a creature of its times that is perhaps best seen as a piece of conceptual art in its own right—never caught on.

One of the inherent problems with the contractual approach is questionable enforceability. Unlike legislation, it is more difficult for a contractual provision to encompass subsequent transfers of a work since there would not be any “privity of contract” between the gallery and subsequent purchasers, as the latter were not party to the original contract. In addition, enforceability depends on the sales channel: while auctions are public and transparent, and gallery inventories somewhat public, sales among private dealers and collectors would be near impossible to track.

Perhaps more to the point, galleries regard such contractual provisions as being bad for business. In addition to the transaction costs in documenting and negotiating such provisions, the fear is that collectors would simply be frightened away. Galleries prefer to rely instead on trusted art world relationships, the promise of access to future work, and other “soft” means of controlling their artists’ secondary markets, and are likely to continue to do so for the foreseeable future.