Je Suis Public Domain

by Dennis C. Abrams*JeSuisCharlieTM2

On January 7th in Paris, an Islamist terror attack at the headquarters of the satirical magazine Charlie  Hebdo resulted in the deaths of twelve people. It was immediately apparent that the attacks were carried out in retaliation for the magazine’s cartoons depicting the Prophet Muhammad. Shortly after the shooting, Joachim Roncin, a Parisian who works for the French magazine Stylist, posted a defiant message on Twitter with the text “Je Suis Charlie” (which translates to “I Am Charlie”). Although Roncin’s Twitter account had only 400 or so followers at the time, “Je Suis Charlie” quickly became a global rallying cry for freedom of expression and solidarity against terrorism. The phrase, which according to Roncin, means “I am free, I am not afraid,” went on to become one of the most popular news-related hashtags ever on Twitter.

Since Roncin originally coined the phrase, there have been attempts by several parties, including Roncin himself, to establish and protect rights to “Je Suis Charlie.” A day after the attack, Yanick Uytterhaegen, a Belgian man, filed an application with the Benelux Office for Intellectual Property to use the phrase in Belgium, Luxembourg and the Netherlands in association with a variety of goods including things such as sporting goods, stationery, cleaning supplies and footwear. France’s National Industrial Property Institute received at least fifty applications to register the phrase as a trademark but announced less than a week after the attack that none of the applications would be granted. At least two trademark applications were also filed in the United States and one in Australia in the days that followed. Both the Australian and Belgian applications have since been withdrawn while the American applications are pending review.

There are several reasons why applicants are ill-advised to attempt to have “Je Suis Charlie” and similar slogans registered as trademarks and why offices which rule on these applications are unlikely to grant them. As Roberto Ledesma, a former Trademark Examiner at the United States Patent and Trademark Office (USPTO), explained on his blog, EverythingTrademark.com, in addition to subjecting themselves to public scrutiny and criticism, applicants will likely find their applications rejected and their time and money wasted.

Applications for trademark rights in slogans associated with tragedies and social causes has become something of a trend recently. For example, attempts were made to register “Boston Strong” after the Boston Marathon bombings, “Hands Up, Don’t Shoot” in relation to the unrest in Ferguson, Missouri, “I Can’t Breathe” following the death of Eric Garner at the hands of the New York Police Department and “Ice Bucket Challenge” at the height of the viral video fad which promoted awareness of Lou Gehrig’s disease. Such applications are often viewed unfavorably as attempts to commodify and capitalize on tragedies. Illinois woman Catherine Crump has been called “shameless” for attempting to trademark “I Can’t Breathe” and Jezebel writer Jia Tolentino added a taunt, “[s]ee you in hell, Crump!” The ALS Association also withdrew its application for “Ice Bucket Challenge” amid controversy.

Trademark applicants for “Je Suis Charlie” are especially likely to face scrutiny because trademarking the phrase would have the counterintuitive effect of restricting the use of a slogan which, in the aftermath of the attack on a periodical, has become emblematic of the rights to freedom of expression and freedom of the press. According to The Independent, Yanick Uytterhaegen was predictably the target of a vilifying Twitter campaign (here are just a few examples of reactions on social media) before withdrawing his application for “Je Suis Charlie.”

A sampling of “Je Suis Charlie” merchandise available online compiled by RTL Nieuws.

Even if public backlash, whether justified or not, is insufficient to deter prospective applicants, registration is not likely to be granted either in the United States or elsewhere. As Ledesma reminds us, trademarks exist to serve as source identifiers for goods and services. Slogans such as “Je Suis Charlie” are so ubiquitous and noncommercial that consumers will not associate them with a particular source of goods but with the cause, issue or event to which they refer. Applications to register “Boston Strong,” “Hands Up, Don’t Shoot,” and “Occupy Wall Street” were all rejected by the USPTO on these grounds.

Registering “Je Suis Charlie” would face an additional roadblock because “Charlie” is a reference to Charlie Hebdo. Lanham Act § 2(a) bars from registration a trademark which falsely suggests a connection between a trademark and other persons, institutes, entities, ideas and so on. Ledesma’s article cites the applications for “Justice 4 Trayvon,” “MH17,” and “Linsanity” which were rejected by the USPTO on the grounds that they suggested connections to the estate of Trayvon Martin, Malaysia Airlines and Jeremy Lin respectively. Once the USPTO inevitably rejects an application for such a trademark, the applicant will have spent a minimum of $225, assuming the cheapest application option and no legal assistance.

Capitalizing on “Je Suis Charlie” and similar slogans may also be unfeasible in Europe. Belgian attorney Paul Maeyaert suggests that applications for such slogans can be rejected on moral grounds for their “free riding on a catastrophic happening.” More specific to the rallying cry at issue, attempting to monopolize “use of a slogan incorporating one of the main rights of the Convention for the Protection of Human Rights and Fundamental Freedom (i.e. freedom of speech)” could be grounds for the rejection of an application of “Je Suis Charlie.” Other European attorneys point out that a European trademark office could refuse registration “on the grounds of being disparaging or offensive” or “contrary to public policy or accepted principles of morality” due to their intent to capitalize on a tragic event. Outcomes would ultimately be determined by whether the trademark office in question considered the mark “below the accepted principles of morality” in their jurisdiction. As such, registration determinations could vary between jurisdictions. An ill-fated application in Europe may also cost registrants even more than in the U.S.; Yanick Uytterhaegen, for example, would have been required to pay a minimum of roughly $270 in the Benelux.

Fortunately, the social consequences of applying for trademark rights in transcendent, topical rallying cries would be discouraging enough for most people. But there will always be those who feel that the potential for profit makes such applications worthwhile. These profiteers should closely monitor the fate of the two American applications to trademark “Je Suis Charlie.” When these pending applications are inevitably rejected or withdrawn, they will join the ranks of the many similar applications which met the same fate and prospective exploitative registrants will be forced to reconsider their position.

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About the author: Dennis C. Abrams, Legal Intern with Center for Art Law, is a 3rd year student at Benjamin N. Cardozo School of Law, with an interest in intellectual property, media, art, entertainment, and sports law. He can be reached at denniscabrams@gmail.com

The European VAT: Good for Tax Revenue, Bad for the Commercial Art Market?

by Elizabeth R. Lash, Esq.

As an American, one might be forgiven for assuming that Europe, with its traditional support for the arts (at least, as a cultural phenomenon), would be equally supportive in its tax regime for the same. While in some limited instances, the European Union continues to provide a more favorable regime for the independent artist, the trend towards an ultimately higher value-added tax (“VAT”) on the sale, import and export of artwork, particularly with respect to art sold by galleries and in the resale market, may discourage the growth of an EU-wide commercial art market in comparison with more favorable tax regimes outside the EU.

VAT was initially intended to be used as a single tax rate applicable to all goods and services across all European Union member states. While the standard rate was originally set at 15% in 2006, member states could theoretically request reduced rates in one or two categories, set at no less than 5%. In reality, as each member state negotiated the terms of its entry into the EU, the list of categories has expanded to at least 21, with rates above and below the standard rates (which already varies from 17% to 27%), along with multiple categories of rates below 5% (zero rates, “parking rates” (i.e., rates negotiated with entry into the EU), and super reduced rates). As well, categories of rates are inconsistently drawn, from too narrow to overly broad: it includes, among others, such categories as printed books, e-books, cultural institutions, household cleaning, sporting facility use, bicycles, and writers and composers.

When it comes to artwork, VAT rates vary widely, ranging from 5% (Malta) to 25% (Sweden) (although there is a reduced rate for independent artists’ sales). In addition, VAT may be calculated on the margin (i.e., the difference between the original sale price and the purchase price), instead of under the standard or reduced rate (whichever is applicable to artwork in that particular member state). In a number of member states, the VAT may be set at multiple rates: one for independent artists; another for galleries and dealers; and still another for the import or export of art.

Further complicating this picture, the EU Commission may not only pressure (or even sue) a member state as to the categories for which reduced rates are permitted, but may also regulate individual tax cases affecting artists and collectors. One example in particular is the Flavin case, whose outcome confounded the international art community (and sets an unfavorable precedent in future, similar circumstances). In 2006, a British gallery (named the “Haunch of Venison”) imported two well-known American conceptual artists’ sculptures: Dan Flavin’s light sculpture, and Bill Viola’s video installations. The former consisted of several tubes of fluorescent lights, while the latter consisted of several audio-visual productions playing on various projection screens. The British customs office imposed a 20% rate instead of the reduced 5% rate for artwork. However, upon appeal to the British VAT and Duties Tribunal (the “Tribunal”), the reduced rate was re-instituted in 2008.

But despite this local regulator’s final decision (with no further appeal by the parties to the EU courts), the EU Commission weighed in anyway with its own regulation, issued in September 2010, which specifically overturned the Tribunal’s decision, ostensibly to effectuate the uniform taxation rules on imported goods. The EU Commission found that it was not the installations themselves which constituted artwork, but the results of such installations, whether of the “light effect” of Dan Flavin’s light sculpture, or the videos screened on Bill Viola’s video installations. Thus, in effect, the EU Commission found that the installations should have been taxed just as if a hardware or electronics store had imported lightbulbs and video components. For conceptual artists, this represented a major blow to the sale in and import of their artwork into Europe.

Then take Germany. Germany formerly assessed a reduced VAT of 7% on sales of art (other than photography). However, due to pressure from the EU Commission, which had opened proceedings against Germany regarding this reduced rate category, Germany passed legislation to raise the rate to 19%, effective January 1, 2014 (Germany’s standard VAT rate since 2007). In response, German federal legislators passed a national directive that permitted the tax to be assessed on only 30% of the purchase price, relying in part on an exception to the VAT directive that had been used in France for several years. But the application of this directive was restricted less than a year later by the German states to artwork priced under 500 Euros, and a few other categories, essentially undercutting the law’s essential purpose—to provide a more favorable rate for the commercial art market. Meanwhile, artists selling out of their studios remain subject to the 7% rate. While this may be acceptable for those select artists who sell out of their own studios, it does not bode well for those who are represented by galleries.

In 2014, in another instance of muddying the tax waters, the French government increased VAT on the sale of art in France from 7% to 10%, while still permitting imports of non-EU artwork to be taxed at 5.5%. Only a year later, the French legislators acknowledged this inconsistency, and reduced the VAT on direct sales by French artists to 5.5%, effective January 1, 2015. Meanwhile, in Spain, the current VAT on artwork was raised from 8% to 21% in September 2012, initially as part of the general rate assessed on goods and services related to “culture.” Within a year, after much hue and outcry, Spain decreased the rate again to 10%. Meanwhile, in Italy, the VAT on the sale and import of artwork is still 22%.

The dust may eventually settle on the various VAT rates and their application, but the newest wrinkle is a regulation (Council Implementing Regulation (EU) No 1042/2013) which changes how VAT is assessed—from the place of supply to the place of purchase. While this does not affect traditional visual artists and sculptors, it does impact those who are considered to supply services or goods digitally to consumers—for instance, freelance website designers. The regulation, effective January 1, 2015, requires such businesses to assess VAT based on the country of the purchaser, rather than the VAT of their own country, placing yet another burden on artists in figuring out the application of VAT—even though the regulation was meant, in part, to apply to the likes of e-retailers such as Amazon.com.

In light of the fluctuations in tax rates and their applications, with the ultimate trend inching towards a uniformly high VAT rate, the art market looks nowhere near as enticing in the EU as it does in those countries and locales not subject to the vagaries of the VAT rate debate. In the U.S., for instance, no VAT exists (although, of course, the U.S. does have a sales tax), and there is no import duty assessed on original works of art. Hong Kong does even better—it has no sales tax, import tax, or export tax on artwork. To some degree, the numbers back this up: according to an annual study conducted by Arts Economics for the European Fine Art Foundation, in 2013, the U.S. accounted for 38% of the global market by value, while the EU as a whole dropped 3% points to 32%. (The UK ranked separately at 20%–perhaps not a surprise in light of its 5% reduced VAT rate on artwork, the Flavin case notwithstanding.) Moreover, in the EU itself, the numbers for those member states with the highest VATs declined or remained the same. And while Hong Kong and Singapore did not rank individually as the top winners in 2013 (having perhaps to do with factors other than VAT or customs duties), still, such figures may show in part the effect of applicable tax regimes.

Then there are the so-called “free ports,” located around the globe, which have become popular as a way to store works of art intended primarily as an investment. A free port is essentially a tax haven: artwork may be shipped directly to the free port, and as long it is stored there, VAT will not be assessed on the import. (Of course, once the work is shipped outside the free port to its new destination, any applicable tax will be assessed.) An additional benefit for potential purchasers (depending on the local laws applicable to the free port) is that VAT may not be assessed on any sales of artwork made within the free port—at least not until the artwork has left the free port. (So, hypothetically speaking, if a sale has been made, but the work never leaves the free port, VAT will never be assessed.) Arguably, the art fair Art Basel became popular just for that reason, having made its initial home base in a Swiss free port. As of right now, there are free ports located in Switzerland, Luxembourg, Singapore, and Beijing. (One of the best indications of how popular the Singapore free port has become is that Christie’s auction house now has an office located there.)

The EU Commission has previously expressed that VAT rates are not to be used to control social and economic policy in the EU, and clearly is increasingly attempting to pressure member states, whether through regulation, litigation, or other alternative avenues, to raise VAT rates to a uniformly high rate. However, in the face of global competition, one can only wonder what this trend may mean for the EU in the future as a major player in the commercial art markets.

 

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About the Author: Elizabeth R. Lash, Esq., serves as in-house counsel at Kroll, where she focuses on reviewing agreements relating to cyber security and data breach notification.

DISCLAIMER: This article was prepared by Ms. Lash in her personal capacity; the opinions are the author’s own, and do not reflect the view of Kroll Associates, Inc. or of its affiliates.

Lessons learned from the Sacking of the Summer Palace in China: Diplomacy and Restitution Revisited

One day two bandits entered the Summer Palace. One plundered, the other burned….Before history, one of the two bandits will be called France; the other will be called England…I hope that a day will come when France, delivered and cleansed, will return this booty to despoiled China. Meanwhile, there is a theft and two thieves.

– Victor Hugo, “The Sack of the Summer Palace”

by Merve Stolzman

Built between 1750 and 1764 during the Qing dynasty, the Yuanmingyuan Garden in Beijing, commonly known as the Old Summer Palace, was a masterpiece of imperial garden design. A variety of halls, pavilions, palaces, temples, bridges, fountains, lakes, and hills dotted across this “Garden of Gardens.” The buildings within it were elaborately carved and decorated, and housed thousands of Chinese paintings, antiquities, and other works of art. However, in 1860, during the Second Opium War, British and French forces looted and burned down the Old Summer Palace.

Chinese emperors restored the gardens, first in 1886 and then in the early 1900s, and the government designated it as a public park in 1924. Nevertheless, over 150 years later, thousands of looted Chinese artifacts remain on display in foreign museums around the world, such as the British Museum and Château de Fontainebleau. (Read about recent (Mar.1, 2015) theft of “Asian” artifacts from Chateau de Fontainebleau here). Some, however, have found their way back home.

In February 2014, the KODE Art Museum in Bergen, Norway entered into a trilateral agreement with a Chinese businessman, Huang Nubo, and Peking University to return to China seven marble columns that once decorated the Western-section of the Old Summer Palace for permanent displayed at Peking University. The columns were part of a 2,500-piece collection of Chinese antiquities housed at KODE. Johan Wilhelm Normann Munthe, a collector of Chinese artifacts who settled in China in 1886, donated the collection to the KODE between 1907 and 1935, but how he obtained the looted columns remains a mystery.

International law mandates the restitution of illicitly exported cultural artifacts to their states of origin. Article 7(b)(ii) of the UNESCO 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (“1970 Convention”) requires states parties to recover and return cultural property within their territory that was illegally exported out of the territory of another state party, should that state request restitution. As of January 2015, 127 states have ratified this convention, and enacted national legislation giving effect to the obligations contained within.

One such example is the Australian Protection of Movable Cultural Heritage Act (1986). Part II, Division 2 of this legislation provides that where a foreign country’s moveable cultural property was illicitly exported and subsequently imported into Australian territory, the government can seize the property and return it to that country. The export of the property in question from the host state must have been prohibited at the time of export. While this provision is permissive, Australia has implemented it on several occasions to honor restitution requests from foreign governments. It has set up bilateral agreements with the Republic of Korea and China’s State Administration of Cultural Heritage regulating the import, export and return of the cultural property of those countries. The government has also accepted several standing requests for seizure and return of illegally exported artifacts from countries such as Argentina, Egypt, Cambodia, and Greece.

Notably, in September 2014, the Australian government complied with India’s request for the return of two statues of Hindu deities stolen from temples in Tamil Nadu. The National Gallery of Australia bought one in February 2008 from New York-based art dealer, Subhash Kapoor. The Art Gallery of New South Wales bought the other in 2004 from the same dealer. India Kapoor is currently on trial in India for allegedly stealing many antiquities, including the two statues, and smuggling them out of India.

While Australia’s conduct illustrates how the international restitution regime can effectively be implemented, the Norwegian-Chinese context exposes a gap in the legal regime. This gap centers on the non-retroactive nature of the 1970 Convention and national restitution laws. Both Norway and China are parties to the 1970 Convention. However, the convention does not contain any provisions that apply it retroactively to cultural artifacts that were smuggled out of the territory of a state party before the convention came into force. Recognizing this, UNESCO set up the Intergovernmental Committee for Promoting the Return of Cultural Property to its Countries of Origin or its Restitution in case of Illicit Appropriation (“ICPRCP”) in 1978. This permanent advisory body, comprised of twenty-two UNESCO member states that rotate every four years, encourages and helps facilitate bilateral negotiations between UNESCO member states for the restitution of cultural property of “fundamental significance” illicitly exported out of the host country before 1970. ICPRCP also advises on mediation and conciliation procedures to the member states concerned. However, in order for the host state to request the restitution of cultural property through the ICPRCP mechanism, it needs to initiate bilateral negotiations with the other member states concerned. These negotiations also must have stalled or failed before the request. Since 1983, the ICPRCP has assisted in six successful restitution negotiations.

Norway’s restitution laws, found primarily in § 23a of the Cultural Heritage Act (1979), require that Norway return unlawfully exported cultural objects to their state of origin. However, it is important to acknowledge that the KODE case is not one where the cultural artifacts in question were unlawfully exported. Section 9 of the Regulations on the export and import of cultural objects defines unlawful export in part as “any export from the territory of a State in breach of this State’s legislation on the protection of cultural objects.” KODE acquired the columns between 1907 and 1935, and the Law of the People’s Republic of China on the Protection of Cultural Relics, which governs the export of movable Chinese artifacts, was first enacted in 1982. Consequently, Munthe did not export the Old Summer Palace columns illegally because there were no laws at that time that regulated their export. The timing of KODE’s acquisition of the columns prevents China from obligating Norway to return its national treasures through the 1970 Convention or Norway’s restitution laws. Moreover, unlike Australia, Norway has not entered into a bilateral restitution agreement with China. In effect, the existing framework does not provide China with a legal basis to claim restitution of its cultural objects looted before the mid-to-late 1900s.

Whether China and Norway attempted to negotiate the return of the columns is unknown, and given that diplomatic ties between both countries have been frozen since 2010, it is unlikely that Norway and China would have initiated bilateral negotiations over the return of the columns. These circumstances prevent China from soliciting the ICPRCP’s help in resolving the matter, since, as mentioned above, the intergovernmental body requires the two states concerned to have initiated bilateral negotiations, and these negotiations need have failed or been suspended, before requesting the cultural property’s restitution through the ICPRCP’s mechanism.

In the context of the seven columns at KODE, China’s inability to compel Norway to restitute its artifacts through legal or diplomatic measures is not problematic because KODE agreed to return the columns to China through private negotiations. Such mechanisms are potentially effective alternatives to legal claims or bilateral agreements between governments, and China has benefitted from them on several occasions. For instance, French billionaire, François-Henri Pinault, purchased two bronze heads, one of a rat and the other of a rabbit that were once part of a fountain clock in the Old Summer Palace, and donated them to the National Museum of China. However, these private agreements are contingent on the will of museums and individuals to enter into such arrangements, which may be difficult to obtain. The Chinese government explicitly recognized this in its 2011 periodic report to UNESCO on its implementation of the 1970 Convention. In response, it has attempted to negotiate the return of its cultural property with foreign museums. Such efforts are commendable and necessary.

International and domestic law have set up an enforceable framework for the return of illicitly exported cultural property. However, this regime has failed to address the restitution of artifacts stolen and imported into other countries before the early twentieth century. The laws that regulate the modern import and export of stolen cultural property will likely never be applied retroactively. After all, non-retroactivity is a fundamental legal principle, particularly in the international context where states are only bound by the laws to which they agree. For this reason, it is important for states, and the rest of international community, to support and promote bilateral negotiations, voluntary donations and/or private restitution agreements. In the absence of mandatory obligations to restore looted objects to their state of origin, such arrangements are essential to the success of the international restitution framework, and may spearhead efforts to promote restitution at the national and international level.

Note from the Editors: Despite the wide acceptance of the 1970 Convention, United Nations Security Council still finds it necessary to issue Special Resolutions to prevent illicit traffic in cultural property. See for example, UN Security Council Resolution 2199.)

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About the Author: Merve Stolzman is a third-year law student, American University Washington School of Law; she is the current Symposium Editor of the American University International Law Review. Her areas of interest include: international humanitarian law, the use of force, cultural heritage law, international investment law, and international development law.

Spotlight: Arts Law Centre of Australia

Screen shot 2015-02-24 at 4.08.25 PMby Melissa (YoungJae) Koo*

From the Editors: Given that Center for Art Law has been keenly interested in the legal services available to artists not only within the United States, but also around the world, this time we would like to turn our attention to a unique organization in Australia that has been offering legal assistance to a diverse art client base on the other side of the world for more than 30 years.

 * * *

Australia has been a unique and dynamic place for art and the art market, albeit often overshadowed by giant markets of the United States, United Kingdom, and France. According to Adrian Newstead, Director of Coo-ee Aboriginal Art Gallery, collecting has been growing in Australia, especially centered around Australian Aboriginal art. The growth of secondary market of art sales backed by escalating online sales and overseas dealerships in Australia is also matched by signs of “revival in primary gallery sales and the spectacular success” of Australian urban artists such as Danie Mellor and Tony Albert. Recently, there is a movement among Australian Victorian art gallery owners to create a national peak body for visual arts galleries, spurred by the scandal over stolen antiquities at the National Gallery of Australia. Such recent reports of Australian art and art market news pose questions on the interests of creators of art in the country, known for its unique landscape especially surrounding the Aboriginal art.

As a not-for-profit, Arts Law Centre of Australia (“Arts Law”) is Australia’s leading independent center for the performing and visual arts, operating out offices in Sydney. Center for Art Law has reached out to Robyn Ayres, Executive Director of the organization via email. According to Ayres, Arts Law has been dedicated to empowering artists and creators, protecting their rights and helping to ensure they are fairly rewarded for their creative work since its establishment in 1983. The organization is akin to several state based nonprofit organizations in the United States that provide pro bono legal services to artists such as Volunteer Lawyers for the Arts in New York or New Jersey Volunteer Lawyers for the Arts, which we featured here.

Funding for Arts Law Centre of Australia comes primarily from various governmental as well as nongovernmental agencies. The Australia Council, the Australian government’s arts funding and advisory body, has been the leading financial backer of the organization. Other governmental sponsors include Australian State and Territory governments through their art agencies, Screen Australia, Department of Aboriginal Affairs WA, Screen NT, and Film Victoria. Non-governmental organizations such as Copyright Agency and Phonographic Performance Company of Australia also help funding for the organization.

According to their recently renewed website, Arts Law mainly provides artists and arts organizations with extensive resources and legal services of the range of arts related legal and business matters including but not limited to contracts, copyright, business structures, defamation, insurance, employment, and taxation. Ayres adds that Arts Law’s primary services are around providing such information for the creative communities through the information hub, which boasts rich in-house information such as a variety of legal information sheets and guides, seminar papers from relevant third parties, for example, the Australian Copyright Council, and sample agreements, case studies, eBooks, and videos to name a few. It also publishes a quarterly newsletter art+LAW.

With the team of 7 full-time and 5 part-time staffers, headed by Robyn Ayres as Executive Director, about 240 pro bono legal practitioners as well as a number of law firms located in all Australian States and Territories assist the organization in the provision of the document review service, and daytime volunteers such as law students, law graduates, and qualified lawyers also assist the team. Ayres stated that Arts Law also has an internship program for periods of 3 weeks to 6 months, which regularly takes interns from Australia as well as around the world including the US, Canada, and France.

Specifically, the organization provides legal advice to artists and arts organizations in two main ways: telephone legal advice sessions, either on pro bono or low bono schedule, and more in depth document review sessions available for subscribers. Similar to US-based volunteer lawyer organizations such as New Jersey Volunteer Lawyers for the Arts mentioned above, before providing legal services, the organization determines financial need of a would-be client through their means test. Individuals or arts organizations who do not meet the means test are asked to subscribe and pay a fee ranging from $140 to $500. Subscribers are entitled to two document review sessions and five telephone legal services in the twelve month subscription period, which are valued at over $4,200 Australian Dollars.

Following example illustrates how the organization’s volunteer lawyers help out artists in Australia. When a sculptor was shocked by a letter sent by a Sydney council asking him to stop working on his commissioned sculpture in front of a public library without getting paid, he contacted Arts Law to find out his rights. Although he communicated with the council about the commissioned work via emails, he did not have any formal written contract with the council. A volunteer lawyer from Arts Law advised him that even though there was no formal written contract between the sculptor and the council, it is likely that a binding contract exists between them from a number of documents, and oral and written conversations. During a document review session, the volunteer lawyer drafted a letter of demand to the council outlining that the council was bound by a contract and that it owed the artist money in exchange for the commissioned sculpture. Consequently, the council paid the outstanding amount to the artist.

Furthermore, the organization also offers dispute resolution mechanisms and referrals to accounting services. Ayres also mentioned that Arts Law provides a variety of educational programming throughout Australia, delivering more than 80 lectures, seminars, and workshops, including a webinar program. It also has been instrumental in developments such as the introduction of resale rights and moral rights in Australia, she added.

Arts Law also has been at the forefront of championing Australian artists’ rights with an extensive advocacy agenda on the basis of its “artists first” policy approach. According to Ayres, Arts Law submitted suggestions for changes to the Designs Act in Australia arguing that artists should not lose copyright protection of the work if it is industrially applied. Also recently in 2014, Arts Law argued against the Australian Law Reform Commission’s report on Copyright in the Digital Economy, which recommended amongst other things that Australia introduce a fair use exception in their Copyright Act, similar to the U.S. Ayres stated that the organization argued against such exceptions as it would “erode artists’ rights and broaden the scope for unlicensed use of artists’ works” and recommended that the “current fair dealing exceptions strike an appropriate balance.” See their response here. Also notably, Ayres stated that Arts Law does not agree with the current Australian resale royalty rights scheme as it is only payable on second sale after the law was introduced, rather than payable on all resales.

Perhaps most uniquely, a special program Arts Law offers is Artists in the Black, which caters specifically to Australian Aboriginal artists and Torres Strait Islander artists and art communities. The name “Artists in the Black” refers to an expression “to be in the black,” meaning to be financially profitable and not in debt, or not “in the red.” Introduced in 2004 after the organization observed overwhelming cases of the “rip-offs and exploitation of Indigenous artists” and realized specialized service for them is in need, the program now consists of 15-20% of the organization’s legal work, showing that the considerable amount of legal service provided by the organization is attributed to serving Indigenous artists and their art community, according to their website. Among other achievements through this special program, in 2013, Arts Law successfully advocated for the repeal of Western Australian intestacy laws, which discriminated against Aboriginal people in the State. According to Ayres, the program has also included advocacy on the world stage at the World Intellectual Property Organization’s Intergovernmental Committee (WIPO IGC) meetings about the “need for an international instrument to protect indigenous knowledge and culture.” Arts Law has also made submissions to the Australian government and contributed to the discussion on the better protection of the Indigenous Cultural and Intellectual Property (ICIP) through reform of legislation.

The Artists in the Black program also promotes a new pro bono program called “Adopt a Lawyer,” which partners Aboriginal and Torres Strait Islander community art organizations with an experienced law firm for a three-year partnership. By creating one-on-one relationships between the Aboriginal art organizations and a single law firm, the organizations in need can directly benefit from more timely access to legal advice from the designated firm, and the law firms can enjoy a closer relationship and understanding of Australia’s Indigenous culture and community. For example, through this program, Mowanjum Aboriginal Art & Culture Centre, which represents artists of the Worrora, Ngarinyin, and Wunumbal language groups, is paired with an international law firm Ashurst. Such a program, specially designed for aboriginals who might not have access to legal and business resources related to their art, is unique to this Australian organization, exemplifying the diversity of Australian artists and the organization’s commitment to all of them.

Arts Law Centre of Australia seems to be one of the few examples worldwide where there is a concerted effort to assist artists in navigating the legal and business realm. Ayres stated that although Arts Law does not have any formal relationships with organizations outside of Australia, it occasionally makes informal referrals to “sister” organizations and works with law firms that have global network for the benefit of Australian artists. She also expressed that the organization would be interested in exploring the possibility of more reciprocal arrangements. In the upcoming Spotlight, Center for Art Law will examine the work of Institute for Art and Law in the United Kingdom and Korean Artists Welfare Foundation in South Korea and Arts and Law in Japan. As Arts Law Centre of Australia continues its work 30 years after inauguration, other countries and attorneys worldwide should take notice and aim to set up similar services for their creative community.

Sources:

About the Author: Melissa (YoungJae) Koo, Legal Intern with Center for Art Law, is a third year student at Benjamin N. Cardozo School of Law, concentrating in Intellectual Property law, especially art and fashion law. She can be reached at youngjae.koo@law.cardozo.yu.edu.

Artists’ Use of Drones Endangered

From KATSU's Remember the Future, 2015. Source: http://theholenyc.com/2015/01/02/katsu/

From KATSU’s Remember the Future, 2015.
Source: http://theholenyc.com/2015/01/02/katsu/

By Dennis C. Abrams*

Since the Federal Aviation Administration (FAA) first authorized the use of unmanned aircraft in 1990, noncommercial operation thereof has been relatively unregulated. As a result, artists in the United States have long had free rein to utilize drones in their artwork. However, this freedom may come to an end before the end of 2015. The Chairman of the House Transportation and Infrastructure Committee, Representative Bill Shuster, R-Pa., said in December of 2014 that Congress would prioritize overhauling aviation policy and reauthorizing FAA programs in 2015. In January The Art Newspaper reported that the FAA is planning to submit new restrictive drone regulations to Congress by September.

Drones have become relatively affordable and available to lay consumers over the past few years; the DJI Phantom, the world’s bestselling drone model, is now available for $479 on Amazon.com. As such, the proportion of drone operators who are artists has been increasing relative to the original user base of aviation enthusiasts. Notorious for pushing boundaries of the permissible and possible, artists have used drones as a subject of art (such as in James Bridle’s political commentary “Drone Shadow”), an instrument to create art (as in works by Addie Wagenknecht and KATSU) and a medium in and of themselves (for example, Alex Rivera’s “LowDrone” and Bart Jansen’s taxidermy). Drones have been useful to artists working in different media and fields including photography, painting, audio-visual art and live performances (as in shows by Cirque du Soleil and Japanese dance troupe Eleven Play).

While drones do present exciting means of expression previously unavailable to most artists with modest budgets and little technical training or interest, these drone operators do recognize the unique challenges and risks posed by using the aircraft in their artwork. For example, in 2014, Brooklyn-based graffiti writer KATSU, who has long been on the cutting edge of graffiti innovation, having previously invented the highly influential fire extinguisher spray can, developed a graffiti drone – a quadcopter with an attached aerosol can. Although he has yet to perfect his graffiti drone, he has expressed an intent to use the aircraft to bring his unique brand of art to otherwise inaccessible areas in public view hundreds of feet above the street. However, KATSU’s work may be for naught if the FAA’s forthcoming regulations ground his drone before it can revolutionize the graffiti world. In an interview with Bard College’s Center for the Study of the Drone at a 2014 showing of his drone-created paintings, KATSU acknowledged the novel dangers of using the technology in graffiti, explaining that his traditional graffiti only involves risking his own safety whereas a major concern of using drones is “losing control and having it fly down and hit a woman in the head, or…kill someone.” In addition to injury prevention, the FAA has interests in national security, air traffic control and privacy which could be advanced by regulating noncommercial drone use.

Indeed, the line between commercial, regulated use and recreational, unregulated use of drones can be difficult to identify in the art world. If an operator pilots a drone for use in taking photographs for her own amusement and then later sells those photographs for a modest sum, is she a recreational operator a commercial operator?

Some, such as art critic and journalist Benjamin Sutton, have speculated that the new legislation would eliminate such gray areas by applying the same rules to commercial and noncommercial operation. The legislation may also codify the FAA’s voluntary safety standards for drone operation which, among other suggested “best practices,” encourage operators to not fly near people or crowds, to keep their drones below 400 feet, to give way to full-scale aircraft and to not hesitate to ask for assistance from air traffic control towers in flying safely. The regulations might additionally confine operation to daylight hours.

Commercial drone operation is not absolutely prohibited, however. Under Section 333 of the FAA Modernization and Reform Act of 2012, unmanned aircraft can be used for commercial purposes only if they are granted a certificate of airworthiness by the FAA. In order to grant permission for commercial operation under Section 333, the FAA requires that the operation does not pose a threat to other airspace users or to national security, that there is an “observer” separate from the pilot, that the aircraft remain within sight at all times and that the pilot has at least an FAA Private Pilot certificate and a current medical certificate. To date, the FAA has received 342 requests for Section 333 exceptions and has granted only twenty-four. There is also an exception under Section 334 of the Act allowing federally funded entities, referred to in the statute as “public entities,” to operate drones, which could theoretically allow for continued drone usage in public arts projects.

Until further details come to light, the effects on the art world of the forthcoming legislative revisions are still very speculative. If it were to approach noncommercial drone use the same way that commercial use is handled under current regulations, it would be very difficult for private artists to employ drones in their artwork without running afoul of FAA regulations. However, if the legislation were to only codify the voluntary safety standards, it would not likely be very restrictive of artists’ ability to utilize drones to a reasonable extent.

Selected Source:

  • FAA’s general homepage for drone info: Unmanned Aircraft Systems, Fed. Aviation Admin., http://www.faa.gov/uas/ (last modified Feb. 04, 2015).

About the Author: Dennis C. Abrams, Legal Intern with Center for Art Law, is a 3rd year student at Benjamin N. Cardozo School of Law, concentrating in intellectual property, media, art, entertainment, and sports law. He can be reached at denniscabrams@gmail.com.

Disclaimer: This and all articles are intended as general information, not legal advice, and offer no substitute for seeking representation.

Funding Public Art with Brick and Mortar: The Success and Failure of “Percent for Art” Laws

Jorge Luis Rodriguez, Growth (1985)

Jorge Luis Rodriguez, Growth (1985)

By Emma Kleiner*

Although the thought of East Harlem in 1985 may not immediately spark considerations of aesthetics and community, that was the location and date of the first Percent for Art Project in New York City. In that year, Jorge Luis Rodriguez’s Growth was unveiled there in the East Harlem Artpark, a sculpture dedicated to the intersection of nature and man. Funding for public art works historically came from various sources, including private donors and nonprofit organizations. However, since 1982, New York City’s Percent for Art (PFA) law mandates that one percent of the budget for certain building projects be set aside for public art. Former New York City Mayor Ed Koch, who initiated the law, stated: “For generations to come, it’s a wonderful thing, and I’m very proud of that.” This type of public art law has been mirrored across the nation by many cities and states, and this article analyzes the structure of what makes a successful Percent for Art law. 

New York City’s Percent for Art Program remains one of the strongest in the nation as it strives to bring public art to all corners of the city. Other states, counties, and municipalities around the nation with similar laws include: Chapel Hill, North Carolina; New Haven, Connecticut; Pittsburgh, Pennsylvania; Philadelphia, Pennsylvania; Oro Valley, Arizona. The laws in these cities follow the PFA theme but vary in terms how each program and disbursement is structured and carried out. For example, in some cases, as with the law in New York City, only municipal or City-funded construction projects are mandated to abide by the PFA law, but in other cases, as with the law in Oro Valley, Arizona, public art is compulsory for “all new non-residential and public development projects.” While some public art laws have flourished, like the one in New York City, others have floundered and never gained a strong foothold in the community, like the one in Pittsburgh.

One main feature of a PFA law that affects its ability to succeed is whether the law creates an automatic set-aside for public art or whether the funding must be actively requested. The divide between these types of PFA laws has become particularly apparent in Pittsburgh. The Pittsburgh ordinance, passed in 1977, ceased being enforced about twenty-five years ago, when the city “began including a public-art line item, of about $50,000, in its annual budgets.” Pittsburgh’s PFA law, which requires publicly funded construction projects to set aside 1% of the cost for public art, has gone unenforced for years, and the public started to petition for the law’s enfoncement. One of the main critiques of Pittsburgh’s law is that it became essentially unenforceable because, as reported by the Pittsburgh City Paper in August 2014, the law “requires the department head overseeing a given construction project to actively request artwork for that project — seldom a priority, especially in cash-strapped times.” A possible solution is to make the arts funding automatic, instead of asking for an artwork-funding request that is unlikely to appear in economically difficult times. As a result of Pittsburgh’s PFA law, the community at large has suffered from a deficit of public art and “lost out on thousands, perhaps millions of dollars [worth of art].” The systemic failure of PFA law in Pittsburgh has deprived a city of many public arts projects, and created a situation in which a complete overhaul of the PFA ordinance is necessary in order to enforce any percent for art projects.

In contrast to the situation in Pittsburgh, Oro Valley in Arizona has developed a robust public art law that does not allow developers to shirk the public art requirement. In Oro Valley, the public art law, which has been on the books since 1997, states, “[p]ublic art is a required element for all new non-residential and public development projects.” To aid developers in finding artists and commissioning artwork, Oro Valley’s website contains a public art inventory, which includes the budget for various public art project and the artists’ contact information. The centralization of data has helped Oro Valley’s PFA law to succeed. While making the public art set-aside mandatory in Pittsburgh’s PFA law would be a big step towards enforceability of the law, it would also be necessary to create a database of information about public art in the city. Many developers may have never interacted with public art in the past and may find it daunting to discover and hire an artist. By creating a centralized database with that information, however, developers may be more encouraged in approaching the public art component of their development.

James Turrell, The Color Inside, 84th Skyspace (2008)

James Turrell, The Color Inside, 84th skyspace (2008)

In considering the success and failure of PFA laws, it is critical to be mindful of the many communities that may be impacted by these laws. For example, many Texas universities, including University of Houston, Texas Tech University Systems, University of North Texas, and University of Texas at Austin, have instituted percent for art policies to invigorate the public arts community and cultural landscape on campus. As state legislatures across the country have slashed funding for public universities, oftentimes aimed at cutting the arts and humanities, PFA laws remain a viable way for a public university to inject its campus with an aesthetic component. The strong PFA laws in Texas are stunning examples of how PFA laws can be important for securing public art. The state’s public universities have become some of the most vocal and visual supporters of the law. Several prominent artists have been funded through this program to contribute to the aesthetic landscape of public universities in Texas. James Turrell, who skyrocketed into the public eye over the last few years due to three major retrospective exhibits, recently installed a skyspace at University of Texas at Austin. The universities’ adoption of PFA laws suggest that a strong statewide PFA law that applied to public institutions, including universities, which are chronically underfunded in the arts, could generate the opportunity to for public institutions to grow art collections.

As states, counties, and municipalities struggle to establish strong PFA laws, lawmakers must consider the ultimate enforceability of such laws. The shortcomings of Pittsburgh’s law are good examples of how a PFA law ought to be structured in an enforceable way or risk reaching a tipping point where it is habitually ignored by developers. In contrast, the example provided by Texas demonstrates how the success of a PFA law can bring together different segments of the community to appreciate artwork to which they might not otherwise have access. 

Select Sources:

About the author: Emma Kleiner is a second-year student at Stanford Law School.

Disclaimer: This and all articles are intended as general information, not legal advice, and offer no substitute for seeking representation.

Case Review: Red Rothko Suit, a.k.a. Hoffman v. L&M Arts (TX)

Mark Rothko, Untitled (1961)

Mark Rothko, Untitled (1961). Source: http://www.wikiart.org.

By Chris Michaels, Esq.*

A private art sale involving a Rothko painting is the subject of a bitter lawsuit in the Northern District of Texas. Inadvertently, the dispute sheds light on the often hidden intricacies and nuance of confidential deals. Hoffman v. L&M Arts, et al, deals with an alleged breach of contract relating to a confidentiality provision of a Letter Agreement that provided for a private sale of artwork. The lessons to be learned from this controversy may protect future sellers and buyers who may wish to enter into private sale agreements.

The painting at the heart of the sale is a 1961 Mark Rothko oil, Untitled, executed in bold red and orange (hereinafter the “Red Rothko”), which was owned by the Plaintiff, Marguerite Hoffman, a prominent art collector from Dallas. Plaintiff and her late husband pledged to donate their collection to the Dallas Museum of Art upon their death, although they retained the option to sell paintings during the lifetime. The Red Rothko was on loan to the Dallas Museum of Art, of which Ms. Hoffman is a trustee, prior to the sale, and Hoffman made a conscious decision to use a private sale option to safeguard from the public her decision to dispose of the work instead of donating it to the museum. In April of 2007, Hoffman sold the painting under the terms of a Letter Agreement, which served as an agreement between the Greenberg Van Doren Gallery acting for Hoffman and L&M Arts, a California gallery that has since closed, acting on behalf of the buyer. Principals for the Van Doren Gallery and L&M Arts signed the letter, which contained the following confidentiality provision: “[a]ll parties agree to make maximum effort to keep all aspects of this transaction confidential indefinitely. In addition, the buyer agrees not to hang or display the work for six months following receipt of the painting.” Contractual agreements between Hoffman and Van Doren Gallery and between L&M Arts and the buyer, David Martinez are still confidential. But for the resulting controversy, the terms of the sale as well as the sale itself would have remained hidden from the public.

According to the complaint filed by Hoffman in May of 2010, the private April 2007 sale was finalized for a total price of $17.6 million. Subsequently, L&M invoiced David Martinez and Studio Capital, Inc. (also defendants in this case) for the painting. Studio Capital thereafter took possession of the painting and put it in storage. Three years later, the painting was consigned to Sotheby’s for sale, and on 12 May 2010, the painting was sold at auction with great publicity for $31,442,500. The Hammer price exceeded Hoffman’s earnings from the private sale by $13,842,500. As a result of the sale at auction, Hoffman brought suit against L&M, Martinez, Studio Capital, and others, alleging, among other things, that the defendants breached the confidentiality clause of the Letter Agreement and that subsequently Hoffman suffered damages because, “when she sold the Rothko painting privately, she did so at a substantial discount in exchange for the promise of strict confidentiality, forfeiting the additional millions of dollars the painting would have brought if sold at public auction.” The great chagrin and displeasure of Hoffman is easy to understand but whether her position has legal basis was left to the courts to decide.

In the December 2013 trial that followed, the jury found that the defendants did, in fact, breach the contract and awarded damages of $1.2 million to Hoffman. (The damages award itself presents a thorny procedural issue that will not be explored here). After the award was entered on behalf of Hoffman, all defendants moved for judgment as a matter of law, meaning that defendants were of the opinion that no reasonable jury could have found for the Plaintiff based on the available evidence. Of particular note for the purposes of this article, Martinez and Studio Capital, the buyers in the private sale, moved for judgment on the ground that a reasonable jury could not have found that L&M was either acting as their agent or that they were bound by the Letter Agreement. Essentially, Martinez and Studio Capital argued that they could not breach the confidentiality provision of the Letter Agreement because they were not bound by the Agreement in the first place, or were even aware of its existence.

In reviewing the Martinez and Studio Capital motions, the U.S. District Court for the Northern District of Texas, Dallas Division was faced with two issues: 1) whether there was legally sufficient evidence for a reasonable jury to have found that Martinez and Studio Capital conferred actual authority on L&M to enter into the Letter Agreement on their behalf; and 2) whether there was legally sufficient evidence for a reasonable jury to have found that L&M had apparent authority to enter into the Letter Agreement on behalf of Martinez and Studio Capital.

The Court, analyzing Texas law on actual authority, noted that “[a]n agent’s authority to act on behalf of a principal depends on some communication by the principal either to the agent (actual or express authority) or to the third party (apparent or implied authority).” (Emphasis added). With respect to apparent authority, the Court noted that “one seeking to charge the principal through apparent authority of an agent must establish conduct by the principal that would lead a reasonably prudent person to believe that the agent has the authority that he purports to exercise.” (Emphasis added).

Martinez and Studio Capital argued that L&M had neither actual nor apparent authority to enter into the Letter Agreement on their behalf. Regarding actual authority, the defendants maintained that L&M acted merely as an intermediary in purchasing the painting. Testimony by Martinez and the Principals of L&M backed up the argument that L&M was never authorized to sign the Letter Agreement on behalf of Martinez or Studio Capital. Hoffman presented several arguments in favor of finding that L&M had actual authority to act as the agent of Martinez and Studio Capital, including that the Letter Agreement itself stated that L&M was acting “on behalf of the buyer.”

On the issue of actual authority, the Court found in favor of Martinez and Studio Capital. Simply put, the Court reasoned that there was no evidence that Martinez or Studio Capital directly communicated to L&M that it had authority to enter into an agreement with Hoffman that would be binding on either Martinez or Studio Capital. Additionally, the Court agreed with testimony of one of the Principals of L&M, who maintained that for private sales such as these, there are typically two transactions taking place; one between the seller and the intermediary and one between the intermediary and the buyer. The Court held that a reasonable jury could not find that either Martinez or Studio Capital communicated to L&M or otherwise implied through its conduct that L&M was authorized to enter into a contract with Hoffman that would be binding on the defendants in perpetuity and impose limits on their rights to alienate their property.

On the issue of apparent authority, the Court ruled that, in order to be liable, Martinez and Studio Capital must have engaged in conduct that reasonably led Hoffman to believe that L&M had this authority. The Court further noted that because neither Martinez nor Studio Capital had any direct interaction with Hoffman or her agent, among other reasons, the evidence did not permit the jury to have found that the defendants held L&M out as their agent. As such, the Court granted the motions of Studio Capital and Martinez and dismissed Hoffman’s claims against them with prejudice.

As of 2 February 2015, the case is still active given that Attorneys for Hoffman appealed the latest ruling dismissing Hoffman’s claims against the purchasers of the Red Rothko. There are, however, already a few important takeaways of which buyers, sellers, and dealers should be aware. One is that sophisticated buyers should be very clear with their dealers and intermediaries who purchase artwork as part of a private sale. An agreement in writing with respect to what the dealer is authorized to do, or not do on behalf of the buyer would, in light of the above case, be prudent. Additionally, buyers should be considerate of what they communicate or promise to a seller in private sales.

Hoffman is represented by Willkie Farr & Gallagher LLP, L&M Arts is represented by Susman Godfrey LLP, and Studio Capital is represented by Cleary Gottlieb Steen & Hamilton LLP.

Sources:

About: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaelsartlaw.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Of Koons, Twombly, Perelman and Gagosian: Lessons to be Learned

By Jessica M. Curley (Part I) and Daniel Kokhba (Part II)

Part I: Places, lights, action

The lack of transparency in the art world can sometimes cause unease and distrust among transacting parties, as can be seen in the protracted litigation between billionaire financier Ronald O. Perelman and renowned art dealer Larry Gagosian. Former friends, who once traveled in the same social circles, and had even co-owned a restaurant together, found themselves entangled in an ongoing legal battle stemming from an exchange/sale transaction involving a Jeff Koons sculpture and a Cy Twombly painting.

The initial dispute dates back to April of 2011 when Perelman first expressed interest in the Cy Twombly painting titled “Leaving Paphos Ringed with Waves” (the “Twombly painting”), which at the time had been available for sale at Gagosian’s Gallery. Court papers filed in 2012 stated that Gagosian, whose clients include Steve Cohen and Francois Pinault, quoted a price of $8 million for the painting. Shortly thereafter, Perelman returned to the gallery to purchase the work only to find that it had already been sold to another notable art collector Jose Mugrabi, famous for his extensive Warhol collection. According to Perelman, a few months following the sale, Gagosian advised him that the Twombly painting was back on the market, this time at the increased price of $11.5 million. Even after negotiating a $1 million discount, paying a final price of $10.5 million, Perelman still felt as though he was being defrauded by the forgoing series of transactions, so he proceeded to file suit.

According to the amended complaint, Perelman asserted several legal causes of action against Gagosian including breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment, and deceptive business practices under section 349 of the General Business Law. Perelman alleged that Gagosian conspired with the Mugrabi family, to take advantage of him by upwardly manipulating the market price of the Twombly painting, resulting in a second sale and commission for Gagosian and a quick profit for the Mugrabis. Perelman also accused Gagosian of undervaluing artworks, including Koon’s “Popeye” sculpture and multiple Willem de Kooning paintings that he exchanged as partial satisfaction of the $10.5 million purchase price of the Twombly.

The attorney representing Gagosian, Matthew S. Dontzin, of Dontzin Nagy & Fleissig LLP, stated in court that Perelman’s business entities, including MacAndrews & Forbes Group LLC and MAFG Art Fund, through which he acquired the art, are “sophisticated” professional art investment firms that had a “heightened duty” to engage in due diligence in selecting artworks to acquire. Typically, professional art investment firms specialize in generating returns by strategic purchase and sale of artworks, and have a fiduciary duty toward their investors to secure returns according to best practices and efforts. The attorney for Perelman, Marc Kasowitz, partner at Kasowitz Benson Torres & Friedman LLP, countered Dontzin’s claim by asserting that Perelman is not of the same “level of expertise and skill” as Gagosian, who is “probably the world’s leading and most powerful art dealer,” and thus has relied on Gagosian for over twenty years for advice on investing in art. Kasowitz went on to emphasize that Gagosian not only has “unique knowledge of the art markets,” but that he “makes those markets.”

In his ongoing quest to uncover how other deals involving Gagosian have been executed, Perelman sought unprecedented access to transaction details and even subpoenaed numerous high profile figures and institutions in the art world including members of the Mugrabi family, Gagosian himself, and Sothebys and Philips auction houses. He even apparently hired a former FBI agent experienced in the art business to interview other major collectors, dealers and artists.

Perelman has remarked that art is “a beautiful thing” and has stated that the goal of his litigious activity is to expose the “dirty” side of the otherwise prestigious world of buying and selling fine art. In response, Gagosian’s lawyers stated that Perelman was motivated by a different agenda, mainly “harassing Gagosian and disparaging the gallery”.

In 2013, presiding judge Barbara R. Kapnick suggested that the parties “get themselves together at a cocktail party in the Hamptons” and work their issues out amicably, adding that “this is a crazy case to have going on here in court.” However, the former friends chose not to settle.

Part II: Bright Line on Control and Dominance (Arm’s Length Precedent)

The December 4, 2014 decision by the Appellate Division, First Department in the high profile action entitled MAFG Art Fund, LLC et al. v. Larry Gagosian, et al offers valuable jewels of insight into the art industry and beyond on such topics as fiduciary obligation, investigation, statements about value, and contracts – constant themes underlying many art transactions and attendant disputes. The case included breach of fiduciary duty and fraud claims filed by Plaintiff-buyer against Gallery-seller in connection with a purchase agreement.

Fiduciary Obligation

A fiduciary obligation owed to seller by the dealer is often mistakenly assumed and expected in art transactions. In MAFG, the Court did not find a fiduciary obligation between Plaintiff and the Defendant gallery. “The parties operated at arm’s length when they negotiated for art works. Thus, fiduciary obligations did not exist between them. Moreover, even read liberally, the complaint does not establish that the defendants exercised control and dominance over Plaintiffs – limited liability companies who, by their own description, frequently purchased, sold and exchanged works as investments. Gagosian had no duty vis-à-vis Perelman, an active player in the art market. Accordingly, parties to this and similar transaction should not assume a fiduciary duty, especially when both sides are sophisticated participants in the art market.

Investigation

The false expectation of fiduciary obligation can contribute to sloppy due diligence and lack of investigation. The Court in dismissing the fraud claim recognized the absence of such investigation. The lesson here is to conduct independent investigation before closing on a transaction. Meaning, if Perelman was uncertain of the fair market price for the works he was exchanging for the Twombly or if he did not believe the Twombly offered to him was priced fairly, he had a duty to conduct independent research into the prices.

Statements of value

The Court interestingly notes, “[a]s to the claim that defendants misrepresented the value of certain art works, statements about value of art constitute [a] ‘non-actionable opinion that provide[s] no basis for a fraud claim’”. (Internal citation omitted).   This pointed sentence is a warning to buyers and their advisors and may impact the viability of similar future fraud claims predicated on misrepresentations relating to value.

Contract

In MAFG, Plaintiff claimed that Defendants breached the covenant of good faith and fair dealings by entering into a subsequent agreement that decreased Defendants’ incentive to be involved in resales thereby adversely affecting Plaintiff. The Court refused to interpret the purchase agreement in this manner because subsequent agreement and resale were not covered in the agreement. Granted, many art transactions are regrettably entirely undocumented at great risk to the parties involved. However, even when the parties cross the threshold of handshake to written agreement, they should ensure to document in sufficient detail all provisions, contingencies and expectations.

Review

Friendship is not a defense and should not be used or relied upon while making business decisions involving any sums of money, especially millions of dollars. Careful drafting, review offering plans, negotiation, contemplations and incorporation of expectations and contingencies, and coordination of due diligence by counsel seem like an implicit lesson from the resulting litigation and decision. A dose of preventive medicine may help reduce the risk of litigation. Hamptons may help too.

Sources:

About the Authors:

Jessica M. Curley is a post-graduate fellow at Center for Art Law, who recently graduate from the Benjamin N. Cardozo School of Law, admission to the NY State Bar pending. Curley is pursuing her interest in art law and financial regulation. She may be reached at jessicamcurley@gmail.com or 858.822.9410.

Daniel S. Kokhba, Esq. is a Partner at Kantor Davidoff, Mandelker, Twomey, Gallanty & Olenick, P.C. and focuses his practice on civil litigation, art law and employment law. He may be reached at Kokhba@kantordavidoff.com or 212-682-8383

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Rockwell-not Case Review: Knispel v. Gallery 63 Antiques

By Chris Michaels*
Screen shot 2015-01-13 at 1.53.22 PM

Yelpers report… Gallery 63 Antiques is no more.

How much would you pay for a piece of classic Americana? According to a complaint filed on 23 December 2014, twenty years earlier, in 1994 Barry and Isabel Knispel were willing to pay $347,437 for an original Norman Rockwell oil painting titled “Mending His Ways.” In early 2013, however, the Knispels learned that the oil they purchased and thought was by Rockwell was, in fact, painted by Harold Anderson, an American painter and illustrator, known for his Christian-themed images.

Pursuant to the complaint, in 1994 the Knispels, New Jersey-based art collectors, were solicited by a New York City art gallery, Gallery 63, to purchase several paintings, one of which was represented to be an original Norman Rockwell painting. The Knispels paid the purchase price of $347,437 and, at the time of sale, Gallery 63 arranged to have the painting appraised by Casper Fine Arts & Appraisals to authenticate and value the painting. Laurence Casper, now deceased, provided a written appraisal of the painting, which confirmed its authenticity as an original Rockwell, although it noted that the painting had not previously been recorded as a Rockwell.

The Knispels, relying on Casper’s appraisal and Gallery 63’s guarantee that the painting was an original Rockwell, completed their purchase. Ever since the purchase, the Knispels have displayed the painting in their home and have maintained insurance coverage for the retail replacement of the painting, which was valued at $1,750,000.

CM jan2015

Harold Anderson’s “Patching Pants” as displayed in a 1940 MobilOil advertisement.

In 2013, insurance company which provided the insurance policy for the Knispels’ painting, required that paintings in the collection be examined to ensure authenticity and value. It was not indicated in the Complaint why an appraisal was needed at this time or why one was not conducted earlier. The New York Fine Art Appraisers examined the painting and determined that it was an illustration by Harold Anderson for a MobilOil advertisement, titled “Patching Pants.” With the new attribution, and to the understandable dismay of the Knispels, the painting was thus valued at only $20,000.

The complaint filed by the Knispels avers that the defendants should have discovered that the painting was not an original Rockwell because the forgery was “open and obvious” and that the defendants breached their obligations under the sale contract by failing to deliver an original Rockwell. The complaint also alleges that the defendants knowingly and deliberately provided the Knispels with false information or were grossly negligent in their appraisal abilities.

In this case, Plaintiffs potentially face a statute of limitations defense based on the fact that approximately 20 years have passed between purchase and identification of the misattribution, as well as claims of forgery. The complaint notes that the forged signature was “open and obvious” to appraisers, so this raises the question of why the forgery went unnoticed for so long. As an aside, this issue should be viewed as a warning to collectors who have not had their collections appraised recently. Not only will retail replacement values likely change over the course of 20 years, getting an independent appraisal of a collection allows sophisticated collectors the chance to pro-actively address any issues that may arise.

Plaintiffs are represented by Donald A. Ottanuick, Esq., of Cole, Schotz, Meisel, Forman & Leonard, P.A. of Hackensack, New Jersey. Defendants may still be looking for council. It appears that they being named as a defendant previously, also in a case dealing with a break of warranty and misattribution.

Sources:

  • Complaint, in Knispel v. Gallery 63 Antiques, et al, Sup. Ct. N.J., (Filed on Dec. 23, 2014).
  • Levin v. Gallery 63 Antiques Corp., No. 04-cv-1504 (KMK) (S.D.N.Y., Sept. 26, 2006).

About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238, chriswmichaels@gmail.com, or on Twitter @CMichaelsartlaw.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Wilfredo Lam Exhibit (MA)

Cuba on My Mind: Legal Implications of Accessing Cuban Art

by Lesley Sotolongo, Esq.Screen Shot 2015-01-09 at 9.10.55 AM

Following the rise to power of Fidel Castro in 1959, a declining economy made preserving Cuba’s cultural property and accessing contemporary artworks increasingly difficult. Because of the Communist regime, the U.S. embargo was ratified in 1962 causing Cuba’s cultural heritage to suffer and art works to be illegally exported into the U.S.  Furthermore, the embargo prohibited U.S. museums from exchanging information relating to its conservation efforts with the Cuban government. Despite the high demand for Cuban fine art worldwide, contemporary Cuban painters were not allowed to sell their paintings to the U.S. or to work with auction houses such as Christie’s or Sotheby’s. In fact, Cuban artists have basically no freedom of speech rights evidenced by recent arrests of more than a dozen artists and activists prior to their participation in an open-mic performance planned in Havana’s Plaza de la Revolucion. (Read about Cuban activists arrests in December 2014). Thus, access to Cuban artworks in the U.S. has been significantly curtailed due to the bureaucratic obstacles for both Cubans and Americans. Recently, President Obama has taken executive action to restore diplomatic ties with Cuba and has called on Congress to formally overturn its sanctions, effectively ending the 55 year embargo. Until Congress takes further action the embargo is still in effect.

Wilfredo Lam Exhibit (MA)Still, there have been some Cuban art exhibitions in the U.S. Last year, the McMullen Museum of Art at Boston College organized an exhibit titled “Wilfredo Lam: Imagining New Worlds” with works by this important Cuban artist contextualized as an international figure in 20th-century art history. Furthermore, Abel Barroso, Jorge López Pardo, J. Roberto Diago, Meira Marrero and José Toirac are the headliners of “Permutations: Contemporary Cuban Art at Pan American Art Projects” in Miami, FL. The show reflects on the various strategies that the artists use to comment on social and political realities in Cuba as well as in a broader global context.

In fact, Cuban pieces are increasingly sought out by collectors, fueling illegal exports of their works from Cuba. According to David D’Arcy writing for The Art Newspaper, a missing Havana painting discovered in a Miami art gallery last year increased the toll of works stolen from Cuba’s National Museum of Fine Art in Havana to 95 works. The theft of Eduardo Abela’s painting, Carnaval Infantil, was originally housed at the Museum of Fine Arts in Havana. Cuban officials from the National Council of Cultural Heritage stated that the works were cut directly from their frames while in storage, making it difficult to detect the theft. The statement made by the Cuban government indicated a willingness to work with proper authorities inside or outside of Cuba in order to alert museums, galleries, auction houses and others of similar thefts. This case is significant because art theft is relatively rare in Cuba given that museums are tightly guarded and artwork is usually inspected by the Cuban military officers before it leaves the country. The Cuban government has become increasingly aware of this problem and is anxious to find a solution to reclaim its valuable works. However, Cuba’s suffering economy and current laws in the U.S. make this a difficult task.

One legal exception makes it feasible for artworks to be exported from Cuba. Marco A. Gonzalez, Jr., Esq., a partner at Nicoll, Davis, & Spinella LLP, sat down with Center for Art Law to discuss some relevant U.S. law and the ongoing effects of the embargo. Gonzalez explained a little-known exception to the U.S. embargo for cultural assets. Under the Cuban Assets Control Regulations § 515.206(a) information and informational materials are exempt types of transactions stating in part,

“the importation from any country and the exportation to any country of information or informational materials as defined in § 515.332, whether commercial or otherwise, regardless of format or medium of transmission, are exempt from the prohibitions and regulations of this part except for payments owed to Cuba for telecommunications services between Cuba and the United States.”  31 C.F.R. § 515.206(a) (West 2013).

Under § 515.332, the term information and informational materials includes, (1) Publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, news wire feeds, and other information and informational articles. Specifically, artworks must be classified under Chapter subheading 9701, 9702, or 9703 of the Harmonized Tariff Schedule of the United States. Unlike cigars or rum, which are considered commercial products, the U.S. government classifies Cuban artworks as cultural assets, and thus it is legal for Americans to bring artworks that are included under this law into the U.S. However, this is not always a great idea because the crime of counterfeiting of works and falsifying authentication has become a problem in Cuba. Thus, travelers should be aware of the possibility that they might not be getting what they bargained for.

Since 2003, traveling to Cuba from the U.S. has been highly restricted and now President Obama wishes to ease those restrictions. Previously, only religious, educational, and cultural groups could legally travel to Cuba, and with specific permission from the U.S. State Department. Recently, there were several attempts in the 112th Congress aimed at rolling back the Obama Administration’s actions easing restrictions on travel and remittances, but none of these were approved. Several legislative initiatives were also introduced that would have further eased or lifted such restrictions altogether, but no action was taken on these measures.

Nevertheless, Americans still cannot simply book a flight and head to Cuba. In order to travel to Cuba the traveler must book the trip with a Cuban travel agency that has an official license from the U.S. State Department. While the tour may include stops at museums or historic sites, purely recreational activities such as visiting the gorgeous beaches are prohibited from tour itineraries. Thus, travel and bringing home artwork is possible with the exercise of caution.

Whether exported illegally or not, the fact is that Cuban art remains coveted despite the trade embargo that might very well be overturned in the near future. Thus, the art world awaits the feasibility of obtaining works created by Cuban artists not only to increase accessibility to Cuban cultural production in the U.S., but also to allow for repatriation of many stolen and misplaced works.

Sources:

Cuban Assets Control Regulations, § 515.

D’Arcy, David, “Stolen paintings from Havana turn up in Miami,” The ArtNewspaper (Mar. 2, 2014 ) available at http://goo.gl/R4wM73

About the Author: Lesley Sotolongo is an intellectual property attorney. She may be reached at Lesley.Sotolongo@law.cardozo.yu.edu.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.