United States: Certain Provisions Of California Resale Royalty Act Are Preempted By The Copyright Act

On April 11, 2016, in Estate of Robert Graham, et al. v. Sotheby's, Inc., D.C. No. 2:11-cv-08604-MWF-FFM (C.D. Cal. 2016), U.S. District Court Judge Michael Fitzgerald concluded that certain provisions of the California Resale Royalty Act (CRRA) are preempted by the Copyright Act of 1976.

The CRRA requires a seller of fine art to pay the artist a 5 percent royalty from the proceeds of a sale "as long as the seller resides in California or the sale takes place in California." Cal. Civ. Code § 986(a). Fine art is defined as "an original painting, sculpture, or drawing, or an original work of art in glass." Id. § 986(c)(2). Under the CRRA, sellers and their agents (including an auction or a gallery, dealer, broker, museum, or other person acting in such a capacity) have an obligation to locate and pay the artist after a resale is executed. If the seller or agent fails to comply, the artist may sue to recover the royalty due as well as reasonable attorneys' fees. The sale of some fine art, including works valued under $1,000, are excluded from the royalty requirement. 

The First Sale Doctrine

Specifically, the CRRA stands in direct conflict with the first sale doctrine, codified in 17 U.S.C. section 109(a), which provides that "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). This doctrine effectively prohibits copyright holders from exercising downstream distribution control of their products and preserves the "robust secondary markets" available to sellers by "leaving buyers of goods free to compete with each other when reselling or otherwise disposing of those goods." Estate of Graham at 7 (quoting Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351, 1352 (2013)).

The primary goal of the first sale doctrine is to create a mechanism wherein a copyright owner's statutory right to control a copyrighted item's distribution is exhausted once the owner places that item into the stream of commerce by selling it. Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135, 137 (1998). In Estate of Graham, the court drew an analogy between the function of the first sale doctrine and that of the patent exhaustion doctrine, which prevents a patent holder from collecting a double royalty, once from a licensee and once from a purchaser of the licensee's product under the same patent. The first sale doctrine intentionally shifts market power "away from copyright holders and toward competition in order to advantage the consumer." Estate of Graham at 7. Conversely, the CRRA provides a form of copyright protection referred to as droit de suit (the right to follow), which is recognized in many jurisdictions, including France, Germany and Italy. Estate of Graham at 9-10 (citing to Nimmer on Copyright, section 8C.04[A][1] (2015) .) However, instead of adopting droit de suit,Congress expressly enacted section 109 to deliberately hold open the freedom of sellers to resell goods for whatever price a subsequent buyer deems appropriate, "without regard to the wishes of the copyright holder." Estate of Graham at 7, 10.

Regulation of Sellers, Not Proceeds

In Estate of Graham, the court adopted the perspective that the CRRA's royalty requirements regulated the conduct of the seller, rather than merely regulating the final proceeds of sale. Thus, the requirements served to restrict the transactions and did not merely act as a tax on the seller's income. Because the CRRA's royalty requirements are non-waivable and cannot be limited by contract, the obligation creates problems for certain sellers who may not have the ability to easily locate an artist. For example, an auction house must determine independently how much the seller originally paid for the work, ascertain whether the artist is a citizen of the United States and locate the artist to arrange the royalty payment. [12] "All of this information must be obtained through third parties, and auction houses have no means to verify its accuracy." With regard to certain sellers, the CRRA "clouds each art transaction with uncertainty and, practically speaking, restricts the transfer of artworks contrary to section 109(a)." Estate of Graham at 13.

As a result, the CRRA would appear to incentivize collectors and auction houses to relocate outside California to avoid its resale restrictions. Because the 5 percent royalty obligation prevents sellers from obtaining the full value of fine art in the secondary market, "a California art investor would lose money if she were to resell the art for less than 105% of the original purchase price." Estate of Graham at 9. Judge Fitzgerald's holding seeks to preserve the "delicate distribution of rights between copyright holders and downstream resellers" as intended by Congress, thereby protecting the sanctity of secondary markets of fine art. Estate of Graham at 12.

Significant Implication for Online and Virtual Platforms

It also is noteworthy that the court in Estate of Graham found eBay, one of the parties in the suit, to be an improper defendant in such an action brought pursuant to the CRRA. Since the Act regulates only sellers and their agents, a platform such as eBay is not subject to the royalty requirements. In affirming that it is "virtually common knowledge that Defendant eBay is not a seller of goods ... [nor] an agent for sellers of goods," the court drew a distinction between direct sellers and online platforms through which goods are sold. Estate of Graham at 34.

This characterization of what constitutes a seller will hold increasingly significant implications as forums for the sale of fine art transition to online and virtual platforms. Due to the fast-accelerating development of consumer and commercial virtual reality technology, determining the scope of a "seller" under the CRRA is crucial for online platforms seeking to provide a virtual medium for fine art transactions. To assess liability and ensure compliance with the Act − should the CRRA's royalty requirements survive a Ninth Circuit review − a software platform or other online forum facilitating fine art sales will have to consider whether a court would find it to be a seller. In deciding so, a court would look at factors such as whether the entity temporarily held title to the goods offered for sale on its platform; whether it entered into binding contracts with the purchaser on behalf of a seller; or whether it took physical possession of the goods at some point during the transaction occurring on its platform.

Ninth Circuit Review

The CRRA is a veteran in regard to constitutional challenges, having the Ninth Circuit deem certain of its provisions unconstitutional for violating the dormant Commerce Clause. See Sam Francis Found. v. Christies, Inc., 784 F.3d 1320 (9th Cir. 2015), cert. denied, 136 S. Ct. 795, 193 L. Ed. 2d 710 (2016). However, the Ninth Circuit held that the Act's offending provision was severable from the remainder of the statute, leaving the royalty requirements of section 986 intact. In light of the most recent statutory challenge to the CRRA in Estate of Graham, a second trip to the Ninth Circuit for review is likely.

Ultimately, this decision stands for the notion that states do not have the authority to eliminate the first sale doctrine and "imbue copyright holders with unprecedented market power." Estate of Graham at 8. Such a transfer of power "disturbs the equilibrium Congress created in the Copyright Act and subjects those state laws to preemption." Estate of Graham at 9.

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.

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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.


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.


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.


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.


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.


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.


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.