NFT Creator Resale Royalties: A History of Droit de Suite from Jean-François Millet to Robert Rauschenberg to SuperRare
When painter Jean-François Millet’s painting The Angelus resold for 535% more than what he originally sold it for, his family did not see a single cent.[1] When artist Robert Rauschenberg’s Thaw sold for 94.4% more than what he originally sold it for, Rauschenberg was so incensed that he never saw any of that profit, he punched the seller in the stomach.[2] When an NFT sells on SuperRare, the creator receives a 10% royalty payment on every subsequent sale of their NFT.[3]
Non-Fungible Tokens (“NFTs”) came with big promises of a new kind of “art ecosystem,” one that would knock down the brick-and-mortar power structures of the art world and reorder them, putting artists first.[4] This artist-first mentality manifested, in part, in the form of creator resale royalties. But as the market for NFTs exploded and NFTs became big business in 2021, the power shifted out of the hands of creators and into those of NFT marketplaces, who facilitate the creation and sale of NFTs. When NFT marketplaces faced a bear winter in late 2022, the casualty in the battle for NFT market share was creator resale royalties.
The Origins of the Artist Resale Royalty
Artist resale royalties (known as droit de suite in other parts of the world) permit an artist to receive a percentage of the sale price of their works on the secondary market. As such, artists (that is, not only buyers, sellers, and intermediary marketplaces) continually benefit from the potential increased value of their work on the open market.
Droit de suite legislation first emerged in France in 1920 after public outrage over a situation involving French painter Jean-François Millet.[5] Millet sold The Angelus—now largely regarded as a French masterpiece—for 1,000 francs.[6] Years after Millet’s death, both his popularity and the value of his works grew exponentially. Capitalizing on this, the owner sold The Angelus for a record-breaking 553,000 francs at auction.[7] As the pockets of a wealthy private collector grew fat, Millet’s family fell deeper into poverty, and the French public began petitioning the French government for protective legislation for artists.[8] Soon after, France enacted droit de suite to make sure that artists and their families were equitably compensated for any increasing commercial value of the artist’s works on the secondary market.[9]
Not long after, other European countries followed suit, passing their own form of droit de suite legislation, including Belgium in 1921 and Czechoslovakia in 1926.[10] In 1948, the Berne Convention for the Protection of Literary and Artistic Works—an international multilateral treaty for the purpose of systematizing intellectual property rights of artists, authors, and other creators—was amended to include Article 14ter.[11] Under Article 14ter, an author or an author’s heirs are entitled to an “inalienable right to an interest in any sale of the work subsequent to the first transfer by the author” to the extent that a country has implemented legislation granting this right.[12] While Article 14ter is optional, rather than required, under the Berne Convention, more than 80 countries have enacted some version of droit de suite legislation.[13]
The Rocky Relationship Between the United States and Droit de Suite
The United States, a party to the Berne Convention, has been reluctant to adopt droit de suite legislation. However, artists and others have been pushing for droit de suite in the United States for decades.[14] Proponents of droit de suite have both pushed for national legislation and sought to gain the benefits of droit de suite by making private contractual language protecting artists customary in art transactions.
In 1971, curator Seth Siegelaub and attorney Robert Projansky drafted the Artist’s Reserved Rights Transfer and Sale Agreement (the “Artist’s Contract”), a model agreement for artists to use when selling their artwork.[15] The Artist’s Contract was an attempt to correct the pervasive inequities that Siegelaub believed negatively impacted artists.[16] One of those inequities was the inability for artists to benefit from any increased value of their work on the secondary market. The Artist’s Contract included a controversial resale royalty, entitling the artist to 15% of any profits made upon resale of the work.[17] Although the Artist’s Contract did not become customary practice in art market transactions, echoes of the agreement’s droit de suite protections have influenced younger generations of artists. Sale agreements used by artists, such as Nari Ward in 2019 and Cady Noland in 1992, have contained resale royalties that must be paid by buyers to specific charities.[18]
In 1976, California enacted the California Resale Royalty Act (“CRRA”), which was, and still is, the only domestic legislation granting droit de suite to artists.[19] The CRRA was enacted against a backdrop that mirrors the tale of Jean-François Millet’s The Angelus.[20] In 1973, a private collector sold Robert Rauschenberg’s Thaw for $85,000. The collector purchased it from Rauschenberg years earlier for only $900.[21] Upon learning about the exponential increase in Thaw’s value, Rauschenberg punched the private collector in the stomach and began lobbying for droit de suite legislation.[22] Three years later, the CRRA was enacted in California.
The CRRA grants a 5% royalty to the U.S. artists of artworks valued over $1,000 that are resold either in California or by a California seller.[23] This inalienable right exists for the duration of the artists life and could be exercised by the artist’s heirs up to twenty years after the artist’s death. [24]
In 2011, a group of artists and their heirs sued auction houses Sotheby’s, Christie’s, and eBay, alleging that they were failing to pay droit de suite royalties as required under the CRRA to artists and their families.[25] Decades after Rauschenberg punched the seller of Thaw, Close v. Sotheby resulted in another punch to the gut—this time, to artists.
In 2018, the Ninth Circuit found the CRRA invalid because it was pre-empted by the 1976 Copyright Act’s first sale doctrine.[26] The U.S. Copyright Act of 1976 allows visual artists to exploit a bundle of exclusive rights, including preventing unlicensed copying or distribution. However, the Copyright Act also includes several exceptions that guarantee the property rights of lawful purchasers of copyrighted works. One of these is the first sale doctrine, which permits owners of copyrighted works “to sell or otherwise dispose of the possession of that copy” and to “display that copy publicly. . .” without the authorization of the creator.[27] For certain kinds of artists protected under the Copyright Act—for example, literary authors or musical artists who produce hundreds or thousands of copies of a work for sale—the first sale doctrine does not necessarily affect their income because these artists create hundreds, thousands, or millions of fungible copies of their copyrighted works, and as such, they can profit equitably from each “first sale” of their works.[28] However, for most visual artists, particularly those who produce non-fungible or limited series of works, the financial benefit they receive from first sale may pale in comparison to the profit made by private collectors, galleries, and auction houses that take advantage of an artist’s increased popularity and value on the secondary market.[29]
However, the Ninth Circuit held that the Copyright Act’s first sale doctrine bars U.S. artists from receiving ongoing royalty payments from the secondary sales of artworks because doing so would infringe on the legal rights of lawful owners of works.[30] After the Ninth Circuit’s decision, the CRRA was limited in scope, now only applicable to works created between January 1, 1977 (when the CRRA entered into force) and January 1, 1978 (when the 1976 Copyright entered into force).[31]
Over the years, there have been numerous failed efforts to enact national legislation establishing droit de suite protection for artists.[32] In 2011, the Equity for Visual Artists Act (“EVAA”) was introduced in Congress. The bill sought to establish a 7% royalty—split between the artist and a fund to support non-profit museums—on all works sold at public auction for $10,000 or more.[33] In 2014, several democratic congressmen introduced the American Royalties Too Act (“ARTA”), which required a 5% royalty—capped at $35,000—on all works sold for over $5,000 at auction.[34]
Are NFT Creator Royalties a Gamechanger for Droit de Suite in the United States?
Unlike the efforts to incorporate droit de suite into domestic brick-and-mortar art transactions, artist resale royalties were customary for most NFT sales that occurred between 2018 and 2021. In 2018, John Crain created SuperRare, an artist-focused NFT marketplace.[35] At SuperRare, artists were entitled to 10% resale royalty for every secondary sale of their NFT.[36] Other NFT marketplaces followed the SuperRare model, and soon, droit de suite protections for NFT artists and creators became an industry norm.
Up until the beginning of 2022, many NFT marketplaces integrated droit de suite into their transactions. As the market exploded in 2021, generating $25 billion in sales,[37] NFT creators drew in more than $1.8 billion in royalties.[38] However, as the crypto boom began to fizzle in 2022, NFT marketplaces began battling for customers by putting buyer-seller interests ahead of artist interests.[39] Droit de suite were caught in the crossfire. In 2022, NFT platform X2Y2 made artist royalties optional in an attempt to attract buyers with lower fees. Soon after, other platforms including LooksRare, Blur, SudoSwap, and Magic Eden followed suit.[40] Some platforms even opted out of royalties altogether.[41]
OpenSea, one of the largest NFT marketplaces, opted for a filtering tool embedded in smart contracts that allowed NFT creators to block any secondary sales of their NFTs on marketplaces that did not enforce royalties.[42] But due to mounting pressure from other marketplaces, OpenSea reversed course and made all creator royalties optional.[43] However, some marketplaces remain committed to droit de suite. For example, SuperRare reiterated its commitment to creator resale royalties in late February 2023.[44]
While the battle over creator resale royalties continues, their implementation in the NFT marketplace highlights how NFTs and the blockchain technology that supports them can fundamentally shift the current domestic debate surrounding droit de suite. The proponents of droit de suite argue that artist resale royalties are a mechanism designed to compensate artists and creators more fairly for their creative labor. By compensating artists for the increased value of their work as their popularity grows over time, the industry that is reliant on their creative labor reinvests in those artists. As a result, artists, who are more equitably compensated, are better incentivized to continue to create value for those third party buyers, sellers, and intermediary players.[45] Droit de suite, therefore, helps create a sustainable cycle where artists and creators are continuously supported throughout the life cycle of their work. The ethos behind droit de suite is compatible with that surrounding NFTs, blockchain, and Web3, where creators and artists are motivated by non-traditional notions of equity.[46]
However, those who argue against droit de suite highlight the significant practical hurdles to implementing royalties. One of the main criticisms of foreign droit de suite legislation is the lack of enforcement mechanisms.[47] Because art market transactions often occur between private parties and in private transactions, it is difficult to ensure that buyers and sellers are paying royalties. Moreover, it can be difficult to track down artists and their families to ensure that these royalties are making their way into the right hands.
Since NFTs are minted and exist on the blockchain, many of the practical enforcement and implementation issues of traditional droit de suite are assuaged. Unlike physical art transactions, the use of blockchain creates a traceable, immutable ledger of transactions and transfers of ownership, even if the parties on each end of the transaction choose to remain anonymous.[48] Blockchain lessens the burden on buyers and sellers to discover the location of creators and lessens the burden on the creator to discover the identity of the buyer and seller. Moreover, since resale royalties are executed through smart contracts, which automate the terms of an agreement, royalties can be paid to creators without any additional steps by either party to the transaction.[49]
While the practical challenges associated with droit de suite are solved by blockchain and smart contracts, there remain economic interests that weigh against the implementation of resale royalties. Another common criticism of droit de suite is its potential effects on the marketplace for art and NFTs. That is, there is a possibility that transactions will have higher fees and costs, resulting in a reduction in the number of willing buyers.[50] As a result of a royalty fee, buyers would flock to marketplaces with lower fees to avoid paying royalties or lower prices for works with an attached royalty fee because buyers will be less willing pay higher prices.[51] In reality, some of these economic fears surrounding droit de suite have been realized in the NFT market. Since creator resale royalties were derogated or made optional, more than 80% of NFT trading occurs on platforms that do not require resale royalties.[52]
While the future of NFT creator resale royalties remains uncertain, the means of their implementation through blockchain and smart contracts demonstrates that perhaps some of the domestic challenges posed by droit de suite are not so insurmountable as previously thought.
Footnotes
