On January 11, 2016, the U.S. Supreme Court denied a petition for certiorari on a ruling that California’s statute providing for continuing royalties to artists on follow-on sales is unconstitutional. The U.S. Court of Appeals for the Ninth Circuit, sitting en banc, overturned the California Resale Royalty Act (CRRA), Cal. Civil Code §986, a law which required art auction houses and other similar parties to pay to five percent of the sales price of any art sold to the original artist. In order for the law to apply, the resale price of the relevant work must be more than $1,000 and the seller must be a resident of California. There are, however, no similar limiting criteria with respect to where the sale must be made.
The Plaintiffs brought three separate class actions against the Defendants, Christie’s, Sotheby’s, and eBay, alleging that they, acting as agents of sellers of fine art, failed to comply with the requirements of the CRRA. The Defendants all argued that they should not be burdened with having to pay the applicable royalty for sales made outside California on behalf of the then-current owners of art who also did not reside in California. The Ninth Circuit based its holding invalidating the CRRA on the Supreme Court’s dormant Commerce Clause jurisprudence, which restricts a state’s right to “discriminate or disadvantage out-of-state companies.”