Addressing the California Resale Royalties Act (CRRA), the US Court of Appeals for the Ninth Circuit upheld a district court’s dismissal of a plaintiff’s CRRA claims concerning resale royalties that postdated the 1976 Copyright Act’s effective date as expressly preempted by 17 USC § 301(a). Close v. Sotheby’s, Case Nos. 16-56234, -56235, -56252 (9th Cir. Dec. 3, 2018) (Bybee, J).

The CRRA grants artists an unwaivable right to 5 percent of the proceeds on any resale of their artwork under specified circumstances. CRRA requires the seller of the artwork or the seller’s agent to withhold 5 percent of the resale price and pay it to the artist or, if the artist cannot be found, to the California Arts Council. If the seller fails to pay the resale royalty, the artist may bring an action for damages.

The plaintiffs in this case are artists seeking resale royalties under CRRA from the statute’s effective date (January 1, 1977) to the present. In 2011, the plaintiffs filed class-action complaints against Sotheby’s, Christie’s and eBay, alleging claims under CRRA and derivative claims under California’s Unfair Competition Law. The district court held that the plaintiffs’ claims were pre-empted by federal copyright law. The plaintiffs appealed.

The Ninth Circuit affirmed in part and reversed in part. The Court held that the plaintiffs’ CRRA claims, which postdate the 1976 Copyright Act’s effective date of January 1, 1978, were expressly pre-empted by 17 USC § 301(a). However, the sales that occurred between CRRA’s January 1, 1977, effective date and the Copyright Act’s January 1, 1978, effective date were not pre-empted. Therefore, dismissal of those claims was reversed and remanded.

Regarding the pre-empted claims, the Ninth Circuit found that the plaintiffs’ CRRA claims asserted rights equivalent to the federal distribution right codified in § 106(3) as limited by the first sale doctrine codified in § 109(a). Section 106(3) grants copyright holders the exclusive right to distribute copies of copyrighted work to the public, and the first sale doctrine limits this right to the first sale of a copyrighted work. The Court stated that CRRA’s rights are equivalent because the root of both provisions concerns the distribution of copies of artwork and defines artists’ right to payment on downstream sales of those copies. CRRA not only grants additional rights beyond what federal copyright law provides, but also reshapes “the contours of federal copyright law’s existing distribution right.” The Court therefore found that CRRA is expressly pre-empted during the time when CRRA and the Copyright Act were both effective.