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The art of the royalty

Feature Articles

Cite as: April 2011 85(4) LIJ, p.

The Resale Royalty Right for Visual Artists Act marks a significant moment in Australia’s recognition of artists’ rights to share in the future profits of their work.

By Julia Cameron

On 9 June 2010, the Resale Royalty Right for Visual Artists Act 2009 (Cth) (the Act) came into operation in Australia.

Under the Act, visual artists are entitled to a royalty on the secondary commercial resale of their work in Australia during the artist’s lifetime and for up to 70 years after their death, provided the work sells for $1000 or more. The Copyright Agency Limited (CAL) administers the scheme and collects and distributes royalty payments.

The introduction of a resale royalty scheme is an important step in the Australian intellectual property landscape and follows many similar and successful schemes overseas, some of which have operated for many years.1 The Act also gives effect to the droit de suite provisions of article 14 of the Berne Convention for the Protection of Literary and Artistic Works,2 (Berne Convention) to which Australia is a signatory.

The need for the scheme arose from the inability of visual artists to benefit directly from the secondary resale of their work. While writers and musicians are able to share in the profits of future exploitation of their works through copyright and licensing, visual artists have to date received only a financial benefit from the initial sale of their work. This problem is highlighted when the life of a piece of visual art is considered: the difference between the price paid for a piece of art at its first sale and its sale 20 years later can be substantial.

Key features of the Act

The main features of the Act are (section numbers refer to this Act unless otherwise specified):

  • The right to receive a royalty occurs on the commercial resale of an artwork (s6) which involves an art market professional (s8(2)).
  • The royalty is only payable on the commercial resale of artwork that is acquired after the commencement of the Act (s11).
  • The royalty is payable where the sale price is $1000 or more (s10(1)(a)) at the rate of 5 per cent (s18).
  • The “sale price” means the amount paid for the artwork by the buyer, including GST, but does not include any buyer’s premium or other tax payable on the sale (s10(2)).
  • An artwork must be an original work of visual art and includes, but is not limited to, artists’ books, batiks, carvings, ceramics, collages, digital artworks, drawings, engravings, fine art jewellery, glassware, installations, lithographs, multimedia artworks, paintings, photographs, pictures, prints, sculptures, tapestries, video artworks, weavings and anything else prescribed by the Regulations.3
  • The royalty right will subsist during the term of the artist’s life and 70 years following the artist’s death (s32).
  • Artists and their heirs must satisfy a residency test to be eligible to receive the royalty (s12).
  • The buyer and seller and any art market professional acting as the agent for the buyer or the seller of the artwork are jointly and severally liable to pay the royalty (s20).
  • The seller of an artwork must give CAL notice within 90 days from the commercial resale (s28).
  • CAL may request information that is necessary to ascertain whether a royalty is payable (s29).
  • An artist cannot sell, assign or charge their royalty right and it is not available to creditors in bankruptcy (s33).
  • Artists cannot waive the royalty right and any agreement to share or repay a royalty is void (s34).

“Artwork”

An artwork is an “original work of visual art” created by one or more artists or under the authority of an artist, and is intended to include original graphic or plastic art, as well as other forms of original arts or craft, such as textiles and new media works.4 The examples given at s7(2)(a)–(v) are non-exhaustive and it is expected that the definition will extend to new forms of visual artistic expression as they evolve.5

Works of architecture, including a building or drawings, plans or models of buildings are excluded from the definition of artwork, as are original manuscripts of writers and composers (s9).

The intention of Parliament is to extend the definition to those artworks which artists have a limited ability to exploit. Accordingly, posters, mass-produced photographic and other prints, films and industrial design are excluded.6 However, multiple originals of an artwork produced in a limited edition authorised by the artist will be covered.7

“Commercial resale”

The commercial resale of an artwork occurs if ownership of the artwork is transferred from one person to another for monetary consideration (s8(1)(a)). First transfers of the artwork do not fall within the definition of “commercial resale” (s8(1)(b)), nor do transfers that do not involve an art market professional acting in that capacity (s8(2)). Provided all criteria are met, online transactions will be considered a “commercial resale”.8

First transfers of artwork include transfers from the artists by gift, sale, exchange for goods or services or inheritance. The inclusion of these exceptions is intended to ensure that artists are not pressured into exchanging their artwork at the first point of transfer, which would have the effect of delaying the royalty payment until the third transfer of the artwork.9

An “art market professional” means an auctioneer, the owner or operator of an art gallery or museum, an art dealer or a person otherwise involved in the dealing of artworks (s8(3)). It will also extend to managers of major private or corporate art collections.10 As a result, private transfers between individuals that do not involve an art market professional acting in that capacity will not be covered. However, someone whose primary business is not in dealing in artworks, but who regularly engages in the business of selling artwork (but not intermittently or occasionally) will be considered an “art market professional”. This will include a cafĂ© owner who regularly displays art for sale on their walls or a specialist antique dealer who deals in both artwork and furniture.11

Prospective application

There is no royalty payable on the first transfer of ownership of artwork if the artwork existed at the commencement of the Act on 9 June 2010 (s11). This is to protect the property rights of those who bought artworks before the start of the legislation, not knowing that a royalty would apply to the resale of the artwork.12

Duration, waiver and inalienability

The right to receive the royalty subsists for the life of the artist plus 70 years after their death (s32). The right is absolutely inalienable by sale, assignment, charge, execution, bankruptcy, insolvency or otherwise (s33) to ensure artists are not pressured into assigning their rights. The royalty cannot be used as security for a loan and is not available to creditors.13

A waiver of the resale royalty right will be of no effect (s34(1)), nor will any agreement to share or repay the royalty (s34(2)). This is intended to prevent artists from being exploited and pressured into waiving or otherwise dealing detrimentally in their right to receive the royalty.14

Who holds the right?

Where an artwork is created by a single artist who is identified and living at the time of commercial resale of the artwork, the royalty right is held by the artist, provided the artist satisfies the residency test at the time of the resale (s12(1)).

Where the artwork is created by a single artist who is identified but not living at the time of the resale, provided the artist satisfied the residency test immediately before their death, the royalty right will be held by the artist’s successors in title (“entity”), provided the entity satisfies the residency test at the time of the resale, as well as the succession test (s12(2)).

An artist is “identified” if, at the time of the commercial resale, the person’s identity as the creator of the artwork is known to the seller or buyer (or art market professional acting as agent for either party), to CAL, or where the artwork is authored by more than one artist, another artist of the artwork (s13).

The residency test will be satisfied if the artist is an Australian citizen, a permanent citizen or a national or citizen of a reciprocating country (s14(1)), which are those that have implemented article 14 of the Berne Convention. A corporation satisfies the residency test if it is incorporated under the Corporations Act 2001 (Cth) or under the laws of a reciprocating country, or if it carries on an enterprise at the time of the sale in Australia or in a reciprocating country (s14(2)). Unincorporated bodies satisfy the residency test if they carry on an enterprise in Australia or in a reciprocating country (s14(3)).

The succession test will be satisfied:

  • if the entity received the right by testamentary disposition (such as in a will) or in accordance with the rules of intestate succession (s15(2)) and is either an individual with a beneficial interest in the right, a charity or a community body (s15(3)); or
  • if the entity received its interest in the right on a winding up of the charity, charitable institution or a community body (s5(4)), that entity is formed for substantially the same purpose as the body that was wound up (s15(5)).

A community body may be incorporated or unincorporated, and must be established by a community for the purposes of supporting or promoting the welfare or cultural values of a community (s3).

Where there is more than one artist, the same thresholds apply (s12(3)), but importantly, the right is held by the artists as tenants in common so that each artist is able to leave their portion of the right to their heirs.

Liability to pay

The seller will always be liable to pay the royalty (s20(a)) and, together with one of the other parties to the sale, being (in order) either the agent for the seller, the agent for the buyer, or the buyer, will be jointly and severally liable to pay the royalty (s20). Practically, it is expected that the decision as to who will pay the royalty will be determined as part of the contractual negotiations of the sale.

While the Act is silent on whether GST is payable on the royalty, CAL’s view is that it is not payable.15

The royalty is a debt due to the holder of the right (s9) and the liability to pay will arise at the time of the commercial resale (s21).

Reporting to CAL, collection and enforcement

The seller of the artwork (or the agent for the seller) must notify CAL in writing within 90 days of the sale of an artwork if it is a “commercial resale” under the Act (s28(1)). As first transfers of the artwork or transfers that do not involve an art market professional are excluded from the definition of “commercial resale”, these transfers do not need to be reported to CAL.

However, if the transfer was for monetary consideration and involved an art market professional, the obligation to report the sale to CAL applies even if the sale price of the artwork is below $1000 or the artist is not Australian or has been dead for over 70 years, or if it is the first transfer of the artwork since the Act commenced.

The notice must include sufficient detail to allow CAL to determine whether a royalty is payable, in what amount and who is liable to pay it (s28(2)). Non-compliance gives rise to a civil penalty under the Act with a maximum penalty of $22,000 for individuals and $110,000 for corporations.

If CAL becomes aware of the commercial resale of an artwork (either because it has been given notice by the seller or not) and it believes on reasonable grounds that an artist or entity is entitled to be paid a royalty, CAL must publish notice of the sale on its website as soon as reasonably practicable after becoming aware of the sale (s22).

CAL must use its best endeavours to collect and enforce the royalty on behalf of the holder to the right (s23(2)). The resale royalty right is only enforceable in an Australian federal court or state and territory court of competent jurisdiction (s25).

A holder of the royalty right can, within 21 days of CAL’s publication on its website of the sale, notify CAL that it is not to collect or enforce the royalty right (s23(1)), but CAL is not subject to the direction of the holder of the right (s23(3)).

A person who claims to hold a royalty right may give CAL written notice setting out their details, the proportion of the right claimed and the basis on which the claim is made (s27).

If the royalty is paid to CAL, CAL must pay the royalty to each person who has given notice to CAL, provided that person has established their claim (s26(1)(a)). A 10 per cent administrative fee will be deducted from the royalty collected. CAL must use its best endeavours to find and pay holders of the right that have not given notice (s26(1)(b)) and it is expected that CAL will use a variety of means to do so.16

If CAL believes on reasonable grounds that a person is a buyer, a seller, an agent for a buyer or seller, or an art market professional involved in the sale, CAL may request that person provide it with information in relation to a sale of artwork (s29(1)). The information requested must be necessary for the purpose of securing payment of the royalty.17 This request must be made within six years of the sale and must be complied with in 90 days (s29(2)). Non-compliance with this provision carries a civil penalty of $11,000 for individuals and $55,000 for corporations.

Implications

Those in the art industry will need to be aware of their obligations in relation to:

  • advising CAL of “commercial resales” of all artworks in accordance with s28; and
  • if requested, providing information to CAL within 90 days of the request, pursuant to s29(2).

Those in the art industry will also need to ensure that all arrangements with artists, particularly those in relation to payment of advance sales, are clearly recorded and that it is understood at what point ownership of the artwork is transferred.

Given that the liability to pay the royalty is joint and several, art industry professionals should be advised to clearly record all arrangements with buyers and sellers as to who is liable to pay the royalty and, where appropriate, retain 5 per cent from the sale and make arrangements to pay this to CAL on behalf of the seller. It will be interesting to see if this develops as standard practice in the art industry.

Vendor agreements between art market professionals and vendors should include an acknowledgment of the obligations under the Act and should specify the parties’ respective liabilities for obligations under the Act.

Art market professionals should also seek a written undertaking from vendors that the information they provide is accurate and complete as well as an indemnity from the vendor for any loss incurred by the art market professional as a result of the information being inaccurate or incomplete.

Where an art market professional is acting as an agent for a purchaser or a vendor, they are advised to clearly record in their invoices to vendors and purchasers that they are acting as agent.

Artist clients should be advised that:

  • they will need to register with CAL to collect their royalty right; and
  • they must notify CAL if they believe they are entitled to receive a royalty.

Artist clients should also be advised to ensure they have current wills, which if necessary specify who will be entitled to the royalty on the death of the artist.

Conclusion

The Act is an important step in the recognition of visual artists’ entitlement to share in the future profits of their work.

However, the Act’s implementation has not been without criticism, particularly from art market professionals, with confusion surrounding the obligation to report and how resale royalty applies in agency arrangements being two of the early principal concerns. As the obligation to pay the royalty does not arise until the second transfer of the work after 9 June 2010, challenges as to whether a royalty is payable will not arise immediately. When they do, it is likely that these questions will include whether the artwork falls within the ambit of the Act, whether title to an artwork has passed (thus giving rise to the payment of a royalty) and who is entitled to hold the resale royalty right.

When is a royalty payable?

1 Deceased estate

A painting created in 2000 by a now deceased artist is first sold to a purchaser in 2001. That purchaser re-sells the painting using an auction house in August 2011. Resale royalty is not payable on the sale, as it is the first transfer of the artwork following the introduction of the Act.

2 Indigenous art

A painter sells an artwork directly to an Indigenous art gallery in December 2010 for $10,000 (Transfer 1). The gallery exhibits the work in March 2012 and the painting is sold for $15,000 (Transfer 2). There is no royalty payable on Transfer 1, but there is a royalty of $750 payable to the artist on Transfer 2.

3 Inheritance

A woman acquires a sculpture in 1987 for $7000. She passes away in July 2010 and leaves the sculpture to her son in her will. In 2016, the son sells the sculpture to a gallery for $30,000. A resale royalty of $1500 is payable to the entity.

4 Not an art market professional

In September 2010, a retired businesswoman acquires a limited edition etching from a gallery for $8000. In August 2012, the woman sells it to a friend, a private collector, in a private sale for $12,000. No resale royalty is payable as the sale and transfer of ownership does not involve an art market professional acting in that capacity.

5 Art market professional

In 1935, a private club purchases a Sidney Nolan painting. It hangs on the club’s walls until September 2010, when the club closes its doors. The club engages the services of a professional auctioneer from an auction house to auction the club’s artwork and furniture. The auctioneer sells the artwork to a private investor for $700,000. No royalty is payable because it is the first transfer of the artwork since the commencement of the Act. In July 2012, the private investor sells it to a gallery for $900,000. A royalty of $45,000 is triggered on this sale.

JULIA CAMERON is an associate in the commercial group at Rigby Cooke Lawyers. She practises in general commercial and intellectual property law.

1. Resale royalty schemes exist in over 50 countries, including all European Union countries.

2. Berne Convention for the Protection of Literary and Artistic Works, Paris, Act of July 24, 1971, as amended on September 28, 1979.

3. As at the date of writing, regulations under the Act have not been made.

4. Revised explanatory memorandum, Resale Royalty Right for Visual Artists Bill 2008, p4.

5. Note 4 above, p4.

6. Note 4 above, p5.

7. Note 4 above, p5.

8. Note 4 above, p5.

9. Note 4 above, p5.

10. Note 4 above, p6.

11. Note 4 above, p6.

12. Note 4 above, p7.

13. Note 4 above, p19.

14. Note 4 above, p19.

15. Copyright Agency Limited, “Artists’ resale royalty scheme: FAQs for art market professionals”, August 2010: www.resaleroyalty.org.au/assets/documents/FAQs-For-AMPs.pdf (accessed 7 February 2011).

16. Note 4 above, p15.

17. Note 4 above, p17.

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