United States: California Resale Royalty Act Claims Dismissed As Preempted By Copyright Law, Despite 1980 Ninth Circuit Holding To The Contrary

Last Updated: April 14 2016
Article by Nicholas M. O'Donnell

Just three months after the Supreme Court denied certiorari review of last year's Ninth Circuit decision finding California's Resale Royalty Act unconstitutional under the Dormant Commerce Clause in part—but also valid in part—the U.S. District Court in Los Angeles has ruled the entire law invalid as preempted by copyright law. Critically, the opinion relies on last year's Ninth Circuit ruling on the Commerce Clause issue to overrule a 1980 Ninth Circuit case that expressly rejected the idea that the law was preempted. This core holding of yesterday's opinion is hard to square with Ninth Circuit precedent, but that will be tested on appeal, for sure. As before, expect proponents of Congressional efforts to enact national legislation to use this decision as support for the idea that a federal solution is necessary, but those efforts have born little fruit to date.

The California Resale Royalty Act, Cal. Civ. Code § 986, (the CRRA) as originally written obliged payment of 5% of the sales price to an artist "if the seller resides in California or the sale takes place in California." The plaintiffs, artist Chuck Close among them, sued on behalf of a class of plaintiffs, alleging that Christie's, Sotheby's, and eBay had not paid the royalties due under the act.

The initial dismissal in 2012 and reversal last year dealt with the power of California, or any state, to make legislation that affects commerce across state line. The grant of authority to Congress to make such laws carries with it the negative implication that states may not regulate that commercial activity. The Ninth Circuit reviewed the CRRA and held that its regulation of sales outside of California violated the Dormant Commerce Clause, but its royalty prescription on transactions entirely within California presented no constitutional problem. The Supreme Court declined to revisit that question and the case returned to the District Court.

There, the defendants made a new argument, also grounded in the Constitution. This time, it was the concept of preemption, something we have had occasion to address frequently in the context of another California law, the various efforts to amend the statute of limitations on Nazi-looted art. Preemption comes from the Supremacy Clause of the Constitution, and there are different kinds, as the District Court explained yesterday:

Conflict preemption applies "when a state law actually conflicts with federal law or when a state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the federal law." [] Express preemption refers to instances where a "preemption clause" in a federal statute expressly displaces the challenged state law.

In reviewing the prospect of conflict preemption, the District Court held that the Copyright Act, by its nature, defines "the scope of the limited monopoly that should be granted to authors or to inventors in order to give the public appropriate access to their work product." State laws must give way when they disrupt that balance by broadening the scope of the copyright beyond what Congress intended."

The problem for the CRRA is the existence of the First Sale Doctrine within the Act itself:

Notwithstanding the provisions of section 106(3), the owner of a particular copy . . . lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy. 17 U.S.C. § 109(a).  

That is to say, the Copyright Act does not only regulate the right of copying, it also addresses the rights that adhere to the physical copy that was sold—and grants to that owner a broad right to dispose of it as he or she sees fit. The CRRA, by contrast, places just such a limitation on that subsequent owner's rights. That is different from bilateral, "downstream" contracts by which owners agree to grant, or waive, subsequent royalty payments, because that is a question of private ordering, not a normative law:

Without § 109(a), copyright holders would not need to bargain for downstream control; they would simply sue for copyright infringement as soon as their products entered secondary markets.

The District Court also addressed the larger topic of these subsequent royalties, the concept of droit de suite. The court took the view that because Congress has considered, but not adopted droit de suite laws, the First Sale Doctrine enshrined in the language of § 109 was the final word on downstream rights.

This interpretation is entirely understandable. The problem is that the District Court has admittedly sided with copyright scholars and against an earlier decision by the Ninth Circuit on that very point. In 1980, the Court of Appeals decided Morseburg v. Baylon. In Morseburg, the Ninth Circuit addressed essentially the same challenge: that the language of the 1909 Copyright Act (which is similar to § 109 of the 1976 Copyright Act now in effect) preempted the CRRA.

In Morseburg, the Ninth Circuit noted that the Supreme Court had approved of other California regulations about music piracy. Morseburg upheld the CRRA as not preempted:

The Copyright Clause does not prevent the enactment by California of the Resale Royalties Act. Nor has the Copyright Act of 1909 explicitly forbidden the enactment of such an act by a state. A bar by implication cannot be found in the word "vend" in section 1 of the 1909 Act. Doubt concerning the correctness of this conclusion disappears when the rights of the artist who creates a work of fine art are analyzed. Prior to the initial sale he holds title to the work and, assuming proper steps have been taken, all rights given to him by reason of his copyright. None of these provide the right afforded to him by the California Resale Royalties Act. This is an additional right similar to the additional protection afforded by California's anti-pirating statute upheld in Goldstein. It is true that under the California Act the right it bestows cannot be waived or transferred. This limits the right created by state law but not any right created by the copyright law.

Morseburg v. Baylon, 621 F.2d 972, 977 (9th Cir. 1980).

The 1909 Act read: "nothing in this title shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained." The current § 109 reads that an owner is "entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy." It is the same law, one is phrased in the negative, one in the positive.

Yet the District Court yesterday held that Morseburg did not dispose of the question, because more recent Supreme Court interpretations of the First Sale Doctrine undermined its rationale—in particular the 2013 decision in Kirtsaeng v. John Wiley & Sons, Inc. The District Court held that in this light, "Indeed, in contrast to a law that merely protects a category of work left unprotected under the Copyright Act, the CRRA encroaches on a subject matter Congress expressly addressed in § 109(a)." Kirtsaeng had held "absurd" the contention that downstream control could be reconciled with § 109.

Lastly, the District Court looked to the Ninth Circuit opinion last year, which "rejected Morseburg's premise that the CRRA "in no way restrict[s] the transfer of art works," [] by holding that the CRRA does, in fact, "facially regulate[] . . . commercial transaction[s]" between resellers and buyers." citing Sam Francis Found. v. Christies, Inc., 784 F.3d 1320, 1324 (2015). That quote from last year's case is a tortured ellipsis (and it is also inaccurate). None of the language in that sentence appears on p. 1324 of last year's decision. In fact, on the previous page, the Sam Francis stated: "the state statute facially regulates a commercial transaction that 'takes place wholly outside of the State's borders.' Id. Accordingly, it violates the dormant Commerce Clause." Sam Francis, 784 F.3d at 1323. In any event, the District Court felt that Sam Francis dispensed with the logic that had led to Morseburg.

The District Court also found express preemption problems by virtue of § 301 of the Copyright Act, which states that:

[A]ll legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106. . . are governed exclusively by this title. . . . [N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

Here, the District Court held, "the CRRA does no more than broaden the distribution rights granted under the Copyright Act. By requiring sellers to remit royalties to the copyright holders, the CRRA fills the gap that Congress intentionally left open in § 109."

But that is hardly clear, because it only follows if the First Sale Doctrine analysis that ignores Morseburg is correct, which is far from obvious.

I had a professor in law school who often said "when I see that my opponent's brief relies primarily on treatises or law review articles, I know I've got them." That is, in a way, what is going on in this case. The opinion is particularly persuaded by treatises like Nimmer on Copyright, not the precedent of the Court of Appeals by which it is bound.

More remarkably given the importance it assigns to the intent of Congress, the District Court rejected the legislative history of the Visual Artists Rights Act of 1990, which included statements in the Congressional Record such as "the law will not preempt a cause of action for a misattribution of a reproduction of a work of visual art or for a violation of a right to a resale royalty." That presumes that as of 1990 the possibility of resale royalty—not already preempted—existed.

The opinion concludes with consideration of a number of other issues raised that need not be reached to make a determination, but made a series of finding in case the Ninth Circuit decides to reach those issues.

There is no question that the District Court's preemption analysis will come under heavy scrutiny on appeal. The Ninth Circuit will certainly be able to decide whether its own opinion in Morseburg is still good law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nicholas M. O'Donnell
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.