Broad or narrow: Taxman reviews “Private” Museums

By David Honig, Esq.*

screen-shot-2016-11-23-at-1-48-18-pmLast year, on November 20, 2015, Senator Orrin Hatch (R-Utah) launched a review of eleven US private museums in response to a recent New York Times Article that exposes a possibility for abuse of 501(c)(3) nonprofit status. Every “domestic or foreign organization described in section 501(c)(3)” is considered a private foundation, unless it fits into one of four scenarios, dealing with where the organizations “support” is derived, set out in § 509(a).  Senator Hatch’s investigation did not include all nongovernment owned museums as the term “private museum” suggests – after all many of the most renowned museums in the United States, such as the Metropolitan Museum of Art in New York and the National Gallery of Art in Chicago are private museums even if they are not thought of as such. Instead, Senator Hatch looked into a subset of museums that only have one donor and are designated private foundation under 26 U.S.C. § 509.

The investigation, which concluded in May of 2016, sought to determine whether, and how much, these museums benefit the public. This inquiry was ignited by the fear that these private foundation museums are offering minimal benefit to the public while affording the donors substantial benefits including tax deductions. For example, the New York Times article mentions that at least two of these museums, Glenstone in Potomac, MD and the Brant Foundation Art Study Center in Greenwich, CT, require reservations and “[are] open only a few days a week to small groups.” The reason this matters is the tax advantages afforded to charities with 501(c)(3) nonprofit status are granted because of the public benefit these organizations provide. Logic suggests, if these museums are not providing a public benefit they should not be given preferential treatment. The real issue is not whether these museums provide a public benefit but whether the benefit provided can justify the private reward. In other words, should individuals capable of purchasing multi-million dollar artworks be afforded a discount on creating and maintaining private viewing salons?  Before determining whether these museums provide enough or any public benefit some background should be given, first on the museums themselves then on the tax benefits associated with this setup.

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The Private Museums

The United States has a long history of encouraging private enterprise. This can be seen in airlines, railroads, institutions of higher education and charitable organizations. The investment of private capital helps alleviate some of the financial strain felt by the state, while encouraging private organizations or individuals to provide public services. Seeking to reward private investment for the public good, “Congress sought to provide tax benefits to charitable organizations, to encourage the development of private institutions that serve a useful public purpose or supplement or take the place of public institutions of the same kind.”

One way Congress provided tax benefits to charitable organizations was by creating 26 U.S.C. § 501. Section 501(a) grants tax exempt status to certain organizations. Relevant here are corporations “organized and operated exclusively for … charitable … or educational purposes … ”. Seeking to take advantage of this section of the internal revenue code collectors have created organizations and donated artworks to them in order to establish museums for their private collections.

The Tax Scheme

One benefit of creating a nonprofit organization and donating artworks to it is clear – if the museum charges an entry fee the revenues can be used to maintain the artworks and space without the donor having to pay taxes. By relinquishing ownership of these works the donor no longer bears sole responsibility for upkeep. Since 9 of the 11 museums surveyed by Senator Hatch do not charge an admission fee, most of the founding donors have to donate more funds to insure the works and premises do not deteriorate. On its face, the free admission scheme is detrimental to the founding donor. In addition to paying for the upkeep, although possibly at a subsidized rate, the founding donor must also relinquish control of the works to the nonprofit corporation for the corporation to be eligible for the tax benefits under the internal revenue code.

Taking these issues in turn, the first, having to pay for upkeep, could actually be a benefit. The internal revenue code, specifically section 170, allows a donor to deduct a “contribution or gift” made to, among other organizations, corporations that qualify for 501(c)(3) tax exempt status. This means that besides possibly paying a reduced rate for the upkeep and maintenance of her art and a facility to house said art, the founding donor can deduct the amount donated to the museum to cover these costs.

In addition to allowing deductions for contributions section 170 also allows a donor to deduct gifts made to authorized organizations. By converting a collection that was privately owned by an individual into one that is held by a museum for the “public’s benefit” the founding donor can use money that would have been personally spent for upkeep of the art to reduce her taxes. By combining tax exempt status granted by 501 with the deductions afforded for charitable contributions in section 170 a founding donor is duly rewarded. Note: the internal revenue code places a limit, usually 50% of gross income, on the amount of deductions a person can take each year for charitable donations.

Tax deductions are not the only reason for a founding donor to entertain creating this type of organization. Once the works are donated the museum owns them and a donor no longer has no control, or so it would seem. If the donor serves on the board of directors, acts as president or serves in some other executive position the donor could execute control over the works of art. In fact, this is exactly what “many” of the founding donors are doing. An example of this is the Broad in downtown Los Angeles, whose founders Eli and Edythe Broad serve on the Board of Governors.

A donor that serves on the board or as an executive will be involved in not only how the artwork is managed but more importantly the operations of the museum. This includes determining hours of operations, admission price, what works should be bought and sold, displayed, put into storage or on loan. It is easy to see why Senator Hatch was worried about abuse of these tax exemptions since donors are able to reap huge tax benefits while seemingly giving up little in their enjoyment and control of art. In fact, some of the museums surveyed said that they are located on land owned by or partially by the founding donor. In other instances, museums are located on land adjacent to the donor’s residence. In order for this scheme to make sense and continue the public must get some benefit.

Public Benefits

“[C]harities [are] to be given preferential treatment because they provide a benefit to society.” It follows, that if there is no benefit to the public then the charity should not be given preferential treatment and a donor should not be allowed to receive tax deductions for donations to that charity. But the issue here is not one of existence of benefit it is one of degree of quality and quantity of benefit. The question ultimately boils down to whether or not these museums provide enough public benefit to be given preferential treatment and how is that determination made. In other words, what is the required level of public benefit that an organization must produce in order to receive preferential tax treatment under section 501 and how is it determined?

Unfortunately, it is hard to determine whether action actually benefits the public and the Internal Revenue Service (“IRS”) guidelines are not very helpful on this front. Besides being open to the public for viewing and informing the public of access, it really is not clear what is required of an organization to achieve tax exempt status.

There are clear benefits to founders of private museums but the question remains are those benefits enough. For instance, of the 11 museums that received a letter from Senator Hatch 10 of them responded that they engage in or have engaged in loan programs. This means that a work of art that would normally be displayed in someone’s home or sit in storage was put on display for a large number of people to see. The creation of more museums allows works to be displayed that otherwise would sit in a basement or storage facility and never be seen by the public.  

Not only does the creation of more museums allow for more work to be shown it allows different work to be shown and curated in different ways. Private museums allow the whims of one person to dictate how and what art is acquired and later displayed. This type of museum does not have to focus on what it thinks would be the most educational exhibit for its visitors as traditional public museums do. Instead the exhibits can focus on art or whatever emotion or reaction a curator wants to provoke. This too is “educational” in its own right even though it is not designed with that purpose in mind.

Maybe the best example of this would be Eli and Edythe Broad’s Broad Museum in Los Angeles, California. The Broad is the poster child for what these types of private museums can be. It is open most days of the week and draws large crowds of young people. In addition to its visitors having a lower average age than the national average of museum goers, 32 compared to 45.8, as of March 2016 70% of the Broad’s visitors were younger than 34 years old.

The Broad represents what these museums can be, but just because others do not do as much as the Broad does not mean they do not do enough to benefit the public. The limited hours and days of operation and reservations requirements can be justified: the founder wanted to create unique and more intimate experiences for visitors. Should it matter that this type of public benefit is intangible?

Ignore for a second the obvious benefit of public access to these artworks. Also ignore the limited circumstances some of the museum allow the public access to these works – a reason for reduced access might be that these museums are new and the operating expenses associated with keeping more traditional matters currently do not make sense because of number of guest expected. How is it determined whether the public receives enough or any benefit at all? Maybe the benefit is not clear or scientific, maybe it is indirect, or maybe it will take years to manifest but once it does it will be incalculable. The fact is public benefit can be difficult to pinpoint.

This difficulty is reminiscent of a Copyright issue raised over 100 years ago. When approached with the question of whether an advertisement could be protected under copyright law in Bleistein v. Donaldson Lithographing Co., Justice Holmes pointed out that judges should not determine the worth of “pictorial illustrations”. His reasoning, which boils down to the tastes of any portion of the public should not be looked down upon. Following that logic, maybe Congress, the IRS or a court adjudicating the issue of public benefit should determine that if any portion of the public benefits from an organization that organization should be allowed to keep its tax exempt status.

 *  *  *

Note: This Article is being reprinted with the permission from Entertainment, Arts and Sports Law Journal, Fall 2016, vol. 27, no. 3, published by the New York State Bar Association, One Elk Street, Albany, New York, 12207

*About the Author: David Honig is a member of the Brooklyn Law School Class of 2015. While attending law school he was a member of the Brooklyn Law Incubator & Policy (BLIP) Clinic. He is admitted to New York and New Jersey state bars. From 2015 to 2016 he served as a postgraduate fellow at the Center for Art Law. David is currently pursuing an LL.M. in taxation from NYU Law.

Building an Anthology from Ephemera: The Legal Issues of Constructing a Political Art Archive

By Scotti Hill*

INTRODUCTION

Predating the advent of words, images have long served as an elemental tool of communication, working to describe and persuade. As the modern era’s complex political systems galvanized and alienated large masses of the globe’s population, the combination of image and text has forged a new path for the rapid dissemination of ideas. In response, political protest manifested into artistic expression, a form preferable to violence.

Attempts to preserve artifacts from political protests have been undertaken with renewed urgency. From the fight for democracy in East Asia to socio-economic and racial activism in the United States, urban areas are drowning in visual and textual evidence of dissatisfaction, reminders of the angst of political alienation. Over the past several years, political events and tragedies have also mobilized archivists hoping to preserve the emotional and historical potency of movements’ artistic output.

Spontaneous graffiti, posters and artifacts have accompanied large systematic protests, such as Occupy Wall Street and Black Lives Matter, raising concerns about the effectiveness of unauthorized artmaking. In Paris and New York, items gathered in the aftermath of terrorist attacks were collected with a sense of emotive resolution. The ephemera of political activism for these protests-posters, makeshift sculptures, graffiti, installations-have been cautiously assembled in archives. Building upon a recent New York Times commentary that investigates the increasing frequency of artifacts archives across the globe, this article explores the legal issues accompanying the preservation of political art, including how copyright, trademark, nuisance, First Amendment and vandalism claims can complicate the already murky notions of artistic authorship in political protest art.

Copyright: Is Political Protest Art Protected?

Copyright defines the possession of an exclusive legal right to literary, artistic or musical material. Normally, the creator retains copyright despite a change in ownership of the physical object. The government retains the copyright to public artworks it commissions, although under the Visual Artists Rights Act (VARA), artists can still enjoy certain protections for state owned works, including preventing the work’s destruction or removal from the site in which it is placed. As the first federal legislation of its kind, VARA effectively grants artists a moral right to protect their creations. VARA does, however establish criteria for what creations are protected, including original and exclusive works crafted from media such as paintings, photographs, sculptures and drawings.

The U.S copyright law is designed to protect intellectual property from being improperly appropriated, exploited and disseminated by third parties. U.S. copyright law’s fair use exception allows for reproduction in cases of educational commentary, criticism, reporting or teaching. In determining fair use, the individual or organization seeking to reproduce the image must articulate the underlying philosophical purpose accompanying the image and take care to not impede the original work’s potential marketability.

Generally, copyright protection for an artistic creation is broad, covering any work of original authorship crafted in a tangible medium that “possesses at least some minimal degree of creativity.” Do temporary or impermanent creations, like those used in political protests, retain the same protection?

Creators of political protest art frequently operate under the guise of anonymity, working to shape or build upon a dialogue. Such items are rarely crafted as art items, let alone designed to be exhibited after the event they are intended to address, shore up or put down. Instead of being cherished in a pristine exhibition space, works are created to be portable and destructible so that they may serve as instruments of a movement, rather than merely symbols of it. Such items include posters that loudly parade the epitaphs of the movement, sculptures symbolizing political ideals, and flyers and pamphlets that participants hand out to eager members of the public.  Most importantly, these items are intended to be shared, to elicit a desired reaction in furtherance of the larger philosophy for which they serve. The disposability of such items negates the care and attention paid to traditional artworks, decreasing the incentive to protect item through legal means. With the foregoing logic in mind, it’s seemingly unlikely that creators of political protest art can assert robust copyright protection for works not intended to survive beyond a certain event. As it stands, the record is silent on the issue of artists seeking copyright protection for works used in political protests, yet the advent of protest artifact archives may bring this once ancillary issue front and center.

Ferguson, Street Art and the Politics of Anti-Institutional Artmaking

The 2014 death of Michael Brown rendered Ferguson, Missouri a hotbed of political and social unrest. In turn, artists and intellectuals resisted a media firestorm that presented the city’s extreme political unrest in a monolithic fashion. In his communal art project, Push Forward, artist Damon Davis pasted images of raised hands in various locations throughout Ferguson. With the permission of local business owners, whose establishments had been boarded up and closed to the community, these stirring images served as visual symbols of collective solidarity. Davis’ works, and many others like it, signal an increasing acceptance of graffiti as art, with more business owners allowing their structures to serve as mediums or ‘canvases’ of expression.

In the 21st century, street artists have seized a growing spirit of dissatisfaction with cultural institutions-namely museums and galleries for which pioneering Land Artist Robert Smithson deemed “mausoleums of culture.” Now, art forms such as graffiti bring art directly to the people, and while the last decade has ushered in an unprecedented degree of cultural acceptance to the medium that was once dismissed as vandalism, this arena is still abound with legal issues such as nuisance. 

As a common law tort, nuisance claims can be either public or private, and, arise from unauthorized and inappropriate uses of one’s property. Often, nuisance claims aim to reverse the tortfeasor’s action, which has affected the property’s value or the owner’s reasonable use of land. The illegal placement of graffiti has served as a logical iteration of nuisance, with the art form existing as a literal defacement of property-regardless of aesthetic value or societal appreciation.

Still other forms of political artmaking evoke public nuisance claims, raising concerns about the viability of art rooted in illegality. VARA’s protection of public artworks is contingent on whether or not the work is of “recognized stature.”  In affirming a legal standard for unsolicited street artworks, English v. BFC&R E. 11th St LLC held that VARA fails to protect illegally placed graffiti. While not all graffiti is protest art, its ongoing popularity attests to the viability of public avenues of expression. Like many of history’s most daring and thought-provoking artworks, graffiti often dares to confront directly that which would have otherwise remained hidden.

Cataloguing Chaos: Preserving the Evidence of Terrorist Attacks in Paris, New York, and the Occupy Wall Street Movement

In the wake of major terrorist attacks in New York on September 11, 2001 and Paris on November 13, 2015, archivists began the arduous process of cataloguing thousands of items compiled in makeshift memorials throughout the cities. In such events, archivists often struggle with determining the best procedure for both collecting the items and curating overwhelming collection.

In Paris, archivists prioritize letters and drawings above other artifacts, as these items seem to harness most eloquently the human dimension of tragedy. Archivists aim to preserve these artifacts’ emotional potency, what sociologists and intellectuals consider the most telling of the collective experience spurned by the event. The donative nature of these items negates legal concerns regarding ownership, however, preservation-determining the appropriate size of a state archive or who makes these determinations remains.

In contrast to the portable ephemera in Paris, New York’s post-9/11 archivist practices were decidedly more ambitious, relying on both small tokens of grief and large sections of destroyed structures. After the city’s terrorist attack, distorted masses of the World Trade Center were quickly isolated and stored with the intent to preserve. Their sublime presence in the 9/11 museum is emblematic of a cultural reluctance to let go, as if the fragments themselves carry with them a magnetic power to retell the trauma of that day’s human loss.

In addition to terrorist attacks, socio-political insurgencies in the West have catalyzed ambitious archives and databases. From the outset, attempts to document and preserve the Occupy Wall Street Movement were undertaken by sociologists, students and organizers. Archivists have to date thousands of items-posters, signs, photographs and messages-stored in physical and digital venues. The process has engendered a fascinating degree of debate from academics and movement insiders, many of whom question the legitimacy of archives’ underlying narratives.

Starting in 2011, students at New York University’s Moving Image Archive and Preservation Program (MIAP) began collecting items presenting the media coverage of the movement. With the help of MIAP director Howard Besser, the students dubbed themselves “Activist Archivists,” uniting under the principal goal of preserving “the spirit, decentralization, self-organization, playfulness, and whimsy of this protest movement [which would otherwise] be lost to history if the media that documented this did not survive.” The archive’s role as counter of ‘real’ history presents an empowering incentive for the process of collecting, and may well persuade other movements to make similar strides in the future.

Je Suis Charlie

According to the U.S. patent and trademark office, two applications were filed for “Je Suis Charlie,” Paris’ iconic rallying cry following the 2015 Charlie Hebdo attack. Recently, the Washington Post proffered a commentary on the increasing frequency by which private individuals and businesses have applied for Trademarks in the wake of public tragedies.

As discussed in Dennis C. Abram’s article “Je Suis Public Domain,” opportunists see great economic potential in creative output, such as slogans that encapsulate the essence of collective spirit following great tragedy. Such attempts are rarely, if ever, legally recognized. U.S. law dictates that a trademark must have some connection to a good or service that is being promoted and visually identified so as to distinguish it from other similar products. 

First Amendment and Vandalism: The Case of the Illuminator Art Collective

While material items such as posters, sculptures and pamphlets evoke the classic definition of a political artifact, performance remains an apt medium for the dissemination of socio-political critiques. Inherently uncommodifiable, performance art often prioritizes the immediate interaction of participants involved in political protests over secondary documentation in the form of photographs or videos. Groups like the Guerilla Girls, the famed feminists whose performances spurned valuable dialogue regarding institutional racism and sexism within the art world, have put art activism on the map in recent decades.

Similarly, the New York City-based Illuminator Art Collective (IAC) stages political protests at famous sites such as the Metropolitan Museum of Art and the United Nations Building, where these iconic structures become the conceptual canvas upon which political critiques are projected. Using a specially designed van that holds a projector on its roof, the group projects messages and symbols meant to provoke dialogue and reveal the secrets these institutions are inclined to keep hidden. The group’s tactics reveal a curious relationship between art activism and the First Amendment, as well as how the seemingly universal definition of vandalism must be altered to adapt to new technologies and artistic visions.

The group’s work highlights this fascinating intersection between art activism and law. On September 9, 2014, three members of the group, Kyle Depew, Grayson Earle and Yates McKee, were arrested for unlawful posting of advertisements, when they projected images on the façade of the Metropolitan Museum of Art. The images were critical of billionaire businessman David Koch, who had recently donated $65 million dollars to the museum in exchange for the museum’s public plaza being renamed after him. IAC’s projections were critical of Koch’s environmental stances, namely his denial of climate change. While parked on a public street, the van was approached by a NYPD deputy, who later seized the group’s projector equipment and arrested the three on the charge of unlawful posting of advertisements. Before these charges were formally dropped by a criminal court, the city of New York issued criminal summonses for three members. NYPL §145.30 “forbids unauthorized individuals from posting, painting or otherwise affixing to the property of another person any advertisement, poster, notice or other matter designed to benefit a person other than the owner of the property.” The law appears to be an adequate measure in protecting businesses from becoming hosts to unwanted advertisements from third parties. In instances of political protest however, does the projection of commentary on the exterior public space fit this definition? While the city of New York seemed to think so, the charges were ultimately struck down in criminal court, with IAC’s lawyer Sam Cohen rightly pointing out that a streaming projection fails to fit the standard definition of “affixing. ”

It follows that if IAC’s political projections fail to meet the definition of unlawful posting of advertisements; they similarly fail to match the legal requirements of vandalism. Vandalism is defined as the deliberate defacing or destruction of property. While it is clear that plastering a non-affixable projection to the façade of a building fails to constitute destruction, does it deface? Defacing implies the marking of a surface-though not in a severe a fashion as destruction. Therefore, IAC’s unique brand of projector activism exists as a clever exercise of first amendment free speech.

CONCLUSION

As curators and archivists undertake the arduous process of compiling artifacts for physical and digital preservation, many questions remain about the legality and posterity of protest art. What is the optimal manner by which to preserve political or artistic ephemera? Who is best situated to protect artists’ rights to create and capitalize on their own art? What do keepers of protest art see when they preserve or trade in this kind of creative output? While political upheaval and tragedy prompt inflections from diverse global communities, museum archivists and administrators as well as art dealers and collectors look to preserve the artifacts for entirely different reasons. Due to the changing and often unsettled landscape of political protest art, artists and collectors alike may find themselves in need of legal advice to obtain information about available protections and defenses.

Note: This article is reprinted with permission from Entertainment, Arts and Sports Law Journal, Summer 2016, Vol. 27, No. 2, published by the New York State Bar Association, One Elk Street, Albany, New York 12207.

About the Author: Scotti Hill is a J.D. Candidate, 2018 from the S.J. Quinney College of Law at the University of Utah. She served as a summer 2016 intern for the Center for Art Law, and she can be reached at scottiaustinhill@gmail.com.

The New Copyright Small Claims Bill: A Ray of Hope for Independent Photographers

By Adelaide Dunn*

screen-shot-2016-10-18-at-4-11-35-amThe U.S. Copyright Act’s single regulatory system fails to accommodate the diversity of production methods, output speeds and business models of today’s creative entrepreneurs. In the eyes of independent and freelance artists, one of copyright’s greatest flaws is its requirement that an infringement claim be litigated in a federal court – an endeavor accruing costs that often far surpass the value of the work at issue. Since 2006, the United States Copyright Office has been questioning creators, holding panel discussions and conducting research pertaining to a new model for resolving small claims. The Copyright Alternative in Small-Claims Enforcement Act of 2016 (“CASE Bill”), introduced in July this year, would create a new Copyright Small Claims Board (“Board”) facilitating the resolution of claims valued below $30,000 in actual damages. The aim is to overcome two of the most common criticisms of copyright law: that its systems favor large corporations over independent and freelance creators, and that it is an abstract set of rules that the general public chooses to ignore. The CASE Bill sketches out an ambitious yet promising new system that has the potential to facilitate settlements, dissuade infringing activity (particularly online), and ensure remedies for copyright infringement are available to low-income creators.

The proposed Board is a streamlined, inexpensive, Internet-based dispute resolution system to be administered by the Copyright Office. Three Officers are to act as adjudicators – two having had significant experience representing or presiding over a diversity of copyright interests, and the third having expertise in alternative dispute resolution. Decisions are primarily made on the papers filed with the administration. Hearings or discussions towards settlement can take place over teleconferencing facilities where needed. The system is designed without the need for attorneys, such that rules of procedure are relaxed, discovery is minimal, and costs are only awarded for cases brought in bad faith. All copyright defenses, including fair use, are available. Because of constitutional limitations, participation with the Board is voluntary, and its decisions do not create precedent.

Creative associations such as The Professional Photographers of America (“PPA”) and the Authors’ Guild are seeing their long-term lobbying efforts come to fruition. The type of creator in need of the new system is what the PPA describes as “low value, high volume” – individuals such as designers, illustrators and photographers – who spend time creating many copyrightable works that are individually of low commercial value. The business of photographers is profoundly affected by online copyright infringement, such that photographers are the prime candidates for the new system (and the example used in this article).

The copyright woes of the independent photographer

Photographers differ from “low volume, high value creators” – such as film directors – who channel their creative efforts into one high value work at a time. A photographer may take hundreds of copyrightable photographs in a day, while also conducting the day-to-day administrative tasks of running a small business. It is easy – and habitual – for Internet users to share photographs without permission, often with watermarks and rights information scrubbed from images or metadata. Exacerbating the issue is the common belief that works of creative expression that appear online – particularly images – are free for the taking. According to a survey by the PPA, 70% of professional photographers have had their work infringed over the past three years.

It is unsurprising that photographers have long protested our “one size fits all” copyright system. Although photographers and filmmakers both depend financially on the licensing of copyright in their works, filmmakers are often better placed to pursue infringement claims. With a stable, financed project overseen by numerous stakeholders, a filmmaker and her studio receive comprehensive legal advice. Attorneys maintain the film’s “IP-hygiene”, including ensuring that copyright in the film (as well as in its posters, soundtrack and other components) is registered with the Copyright Office. Though a creator attains copyright automatically on the creation of the work, the Copyright Act requires that a plaintiff possess a registration certificate before bringing suit for infringement. Registering works in a timely way means that the plaintiff can recover attorney fees from the defendant (17 U.S.C. § 505). It also enables the plaintiff to recover statutory damages, which do not require proof of actual damage, and can be significant (up to $150,000 if the infringing activity is found to be willful) (§ 504(c)).

Softer registration requirements

The registration requirement has been criticized for benefiting the deep-pocketed and well advised over the low-income creators that statutory damages and attorney fees are designed to benefit (Ciolli, 1007). A photographer often lacks the time and money to register his works, given that the Copyright Office’s fees average between $35 – $55 per work, and differ for “published” and “unpublished” works – a distinction many photographers see as burdensome and outdated due to the digital sharing ecosystem. The new small claims system bypasses these difficulties and caters to the reality that most creators do not learn of the legal benefits of a registration certificate until a dispute has arisen that necessitates one. To file a claim, a complainant needs only to have submitted an application for a registration, and can still recover statutory damages if successful. The Board can also award actual damages and profits, but because these are complex calculations in copyright disputes, the combination of statutory damages and soft registration rules will be a boon to photographers.

The Copyright Office will need to create a user-friendly digital platform that allows for e-registrations to be made contemporaneously with the filing of claims. Because many photographers will participate pro se, the platform will be critical in communicating instructions and providing downloadable forms and templates to aid the drafting of briefs. But such a system is probably outside of the Copyright Office’s current IT capacities. Register Maria Pallante has testified to the U.S. House of Representatives that the Copyright Office’s resources are inadequate to support the current digital economy, and that allowing the Copyright Office to establish itself as an autonomous body (independent of the Library of Congress) will give it the authority to make IT investments in furtherance of its own modernization goals (Pallante, 7). Whether these recommendations will eventuate remains to be seen.

Lower costs and streamlined proceedings

It is neither time nor cost effective for a photographer to pursue an infringement claim in a federal court. The PPA has surveyed its members and found that – however numerous – most infringements of single photographs cost below $3,000 (PPA). At the same time, the American Intellectual Property Law Association’s 2015 Report of the Economic Survey indicates that the median cost for a claimant to litigate a copyright infringement suit with less than $1 million at stake through appeal is $250,000 (AIPLA). Even mediating that dispute would cost a median of $40,000 (Ibid.). In addition, according to the 2015 Federal Judicial Caseload Statistics, civil trials take approximately twenty-five months to conclude (Administrative Office of the US Courts). The length is due in part to delaying tactics aimed at draining the other side’s resources and inducing an unequal settlement, such as delaying discovery and filing unnecessary pre-trial motions. Wealthy defendants have strong incentives to behave this way towards low-income adversaries, to ensure that lawyers working pro bono or on contingency bases cannot bear the burden of the full trial.

Indeed, while most content creators are private, most content users – and infringers – are corporate (Wild). The photographer Alex Wild, who left the professional photography business due to frustrations with copyright, writes that his signature extreme close-up insect photographs have been used without permission on venues as diverse as billboards, newspaper articles, video game graphics, company logos, board games, pest-control trucks and iPhone cases (Wild). The corporate disregard for copyright is doubly frustrating to photographers who rely on licenses issued to corporations in those exact sectors.

Key procedures of the Board are aimed at leveling the playing field. To prevent unnecessary delays, rules of civil procedure are simplified, and procedural and discovery-related counterclaims are not accommodated for. Discovery is limited to the production of relevant information, documents and written interrogatories, in order to allow the parties to obtain material facts, establish proof of actual damages, and rebut evidence. The Board also substitutes a formal appeal process with narrow administrative review procedures. This would prevent losing parties with substantial resources from re-litigating a dispute in a federal court.

Potential for collaborative approaches to dispute resolution

Perhaps the Board’s most promising function is to facilitate settlements. The abbreviated and inexpensive trial would give the parties an idea of the merits of their cases, leading to productive discussions, overseen by the Officers. The Board’s utilization of mediation techniques – aided by the Officer with expertise in alternative dispute resolution – could lead to a holistic approach to problem solving. This would give artists an outlet for airing their grievances while also bypassing the power struggles of adversarial trials. Resolutions could lead to innovative and therapeutic business arrangements, such as ongoing royalty fees, partnerships and other agreements.

Criticisms

The CASE Bill is not without its detractors. The foremost worry is that the ease of filing claims will open the Board to abuse by copyright trolls. However, the CASE Bill provides that a Copyright Claims Attorney review each claim to ensure that it complies with copyright law (including, presumably, that it establishes a prima facie case of copyright infringement), before the adversary can be served. In aid of pro se claimants, there are then two opportunities to improve a deficient claim. Though the parties must bear their own costs, the Board may award attorney fees and costs up to $5000 to a party adversely affected by a harassing or improper claim, creating a monetary disincentive against meritless or frivolous claims.

A related worry is that large corporations hiring attorneys will have a significant advantage over pro se parties in terms of the quality of pleadings and submissions. Indeed, organizations such as New Media Rights, California Lawyers for the Arts, and Volunteer Lawyers for the Arts will presumably be vital in helping artists file claims. Interestingly, the CASE Bill also permits qualified law students to represent complainants. Law schools might take this opportunity to set up clinics and internship programs, benefiting both the students taking part and parties in need of representation.

Critics also question whether the Officers should be empowered to make fair use determinations, which are notoriously uncertain and complex. However, as Register Pallante has noted, fair use is a critical safeguard of the Copyright Act (Pallante, 29), which is particularly true with regard to the creation of contemporary art. The availability of the defense will also give respondents an incentive to engage with the Board, and ensure that copyright law continues to align with legitimate consumer expectations. The Officers’ expertise in copyright law will help with the streamlining of fair use decisions. They may develop simpler proxies with which to apply fair use concepts such as transformative use, given that small claims do not have the same cultural and economic ramifications as federal fair use cases (such as the Second Circuit’s recent holding that Google Books amounts to fair use: Authors Guild, Inc. v. Google, Inc.).

Further, the Board does not have a mechanism with which to identify anonymous online infringers. However, its issuance of subpoenas might give further burdensome enforcement duties to Internet Service Providers. Notably, the Copyright Royalty Board has the authority to issue subpoenas but has never exercised this (Copyright Office, 124). The Board also cannot grant injunctions. Though some argue that this might render its determinations toothless, a contrary opinion is that copyright owners can gain unfair leverage through threats of injunctions, and awarding licensing fees in the alternative might lead owners and users to bargain more effectively (Pamela Samuelson et al). Indeed, the Supreme Court in Campbell v. Acuff-Rose noted that a system relying on monetary relief rather than restrictions on commercial behavior might better serve the purposes of copyright and facilitate the lawful use of copyright protected works (at 578 n. 10). The Board can, however, require the respondent to cease the infringing conduct, which appears to be a kind of soft injunction. Because of the voluntary nature of the proceedings, this remedy might function like a contractual promise.

Conclusion

The time is ripe for a new dispute resolution system catering to more diverse range of creators. Currently, the CASE Bill has been referred to the Subcommittee on Courts, Intellectual Property, and the Internet, and has not yet passed the House. Whether it will pass before the next Congressional session begins in January is unclear. But as it incorporates years of research and comments from the Copyright Office, scholars and creative associations, it or a similar law’s incorporation into the Copyright Act seems likely. Indeed, it would align the U.S. with other jurisdictions instigating similar systems, such as the United Kingdom, which in 2012 began to allow informal hearings in its Intellectual Property Enterprise Court regarding claims for infringement of copyright, trademark or unregistered design rights (valued below £10,000). For the U.S., the new system has potential to transform copyright law into an everyday business reality, to give a voice to artists who are currently silenced by the federal system, and to lead to more collaborative and innovative solutions to copyright infringement.

 

Sources:

  • Copyright Alternative in Small-Claims Enforcement Act of 2016, H.R. 5757, 114th Cong. (2016).
  • Copyright Act (17 U.S.C.).
  • Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 n. 10 (1994).
  • Jeffrey Bils, David’s Sling: How to Give Copyright Owners a Practical Way to Pursue Small Claims, 62 U.C.L.A. L. Rev. 464 (2015).
  • Anthony Ciolli, Lowering the Stakes: Toward a Model of Effective Copyright Dispute Resolution 110 W. Va. L. Rev. 1000 (2007).
  • Her Majesty’s Courts & Tribunal Services (United Kingdom), Guide to the Intellectual Property Enterprise Court and Small Claims Track (July, 2014).
  • Virginia Knapp Dorell, Picturing a Remedy for Small Claims of Copyright Infringement, 65 Admin. L. Rev. 449 (2013).
  • Jessica Litman, Real Copyright Reform, 96 Iowa L. Rev. 1 (2010).
  • David Nimmer, A Modest Proposal to Streamline Fair Use Determinations, 24 Cardozo Arts & Ent. L. J. 11 (2006).
  • Register Maria Pallante, The Register’s Perspective on Copyright Review, Statement Before the Committee on the Judiciary, House of Representatives (April 29, 2015).
  • Joel Reidenberg, The Rule of Intellectual Property Law in the Internet Economy, 44 Hous. L. Rev. 1073 (2008).
  • Pamela Samuelson et al., The Copyright Principles Project: Directions for Reform, 25 Berkeley Tech. L. J. 1175 (2010).
  • United States Copyright Office, Copyright Small Claims – A Report of the Register of Copyrights (September 2013).

 

*About the Author: Adelaide Dunn recently graduated with a Master of Laws in Competition, Innovation and Information Law from the New York University School of Law. Before that, she completed a Bachelor of Arts in Art History and a Bachelor of Laws with Honors from The University of Auckland in New Zealand. Adelaide is particularly interested in the intersections of copyright, moral rights and the visual arts. She is currently doing intellectual property, entertainment and commercial law work as a law clerk for a solo practitioner in New York City. Adelaide can be reached at adelaide1dunn@gmail.com.

Spotlight: The Max Stern Art Restitution Project

By Ryan Igel*

screen-shot-2016-09-15-at-5-25-14-pmThe Max Stern Art Restitution Project (the “Project”),  established in 2002, is tasked with locating the paintings Jewish art dealer Max Stern (April 18, 1904 – May 30, 1987) was forced to sell during the Second World War, and return them to his heirs. The Project was established at the direction of the heirs of the Max Stern Estate. As Stern did not have children, his heirs consist of Concordia University in Montreal, McGill University also in Montreal, and Hebrew University in Jerusalem. The Project also serves an important educational and moral function, and seeks to educate both the general public and those in the art industry about art theft and the importance of provenance research in ensuring that artworks are returned to their rightful owners.  

The Project is housed at the Concordia University in Montreal, Quebec. The location of Montreal is significant, as this is where Max Stern settled once in Canada, and where he opened his Canadian gallery, the Dominion Gallery. Dr. Clarence Epstein, a Courtauld-trained art historian with experience in managing artists’ estates, was chosen by the heirs of Max Stern to be the Director of the project, and still holds this role. The project began with seed funding from the heirs of Max Stern, but is now largely self-funded through the sale of selected paintings.

The need for the Project stemmed from the cultural program aimed at confiscating and forcing the sale of art initiated by the Nazi Regime during the Second World War. The unprecedented art theft and destruction that occurred in Europe between 1933 and 1945 was a major part of the Nazi’s systematic efforts to establish a “new world order”. Works that were considered to be “degenerate” because they did not perpetuate Nazi ideals were confiscated from museums, galleries, and even from the homes of individuals. Moreover, because the Nazis believed that certain individuals, particularly those of the Jewish faith, should not participate in the creation and perpetuation of German culture, many Jewish art dealers were forced to sell or forfeit their artworks well below market prices. Many of these confiscated artworks were destroyed or purchased by German art dealers and private collectors while a number of them were sold internationally to finance the Nazi war effort.

Max Stern was one such person. Stern survived the war in Canada, but in the early years of World War Two, he lived in Düsseldorf, Germany, where he owned an art gallery and auction house that was established by his father, Julius Stern. On August 29, 1935, Max Stern received a letter from the Reich Chamber of Fine Arts – an organization tasked with ensuring that artistic endeavors within the Third Reich reflected Nazi ideals – informing him that he could no longer carry on the business of buying or selling art in Germany. Stern was given a deadline of December 15, 1937 by which to sell the 228 paintings that were in his possession. These paintings were later sold at auction at the Lempertz auction house. The extent of Stern’s involvement in the sale of his paintings is unclear as the Lempertz Auction houses records were destroyed when Cologne was bombed during the Second Word War. However, the fact that the catalogue used by the Lempertz auction house resembled those used by Galerie Stern, suggests that Stern was involved in the sale of his paintings.

After the war, individuals who were either forced to sell their art or whose art was confiscated, sought to have their property returned. Post-War restitution commissions were established by the governments of various countries to hear claims for these works, but the commissions were not always sympathetic to claims asserted by victims of the Nazis. This left a significant number of artworks in the possession of governments, state-owned museums, dealers and private collectors.

Like many, Stern began working on retrieving his paintings. On December 27, 1947, Stern filed a claim with the Central Office for Property Control to have 20 of the paintings he was forced to sell returned to him. Stern also placed advertisements in a German art magazine, Die Weltkunst, to publicize his efforts within the arts community. Through these efforts, Stern was able to recover a small number of his paintings. The Project was created to facilitate the return of the majority of paintings that were not recovered during his lifetime.

Restitution efforts call for different skills and much international cooperation between art historians, attorneys, researchers, political figures and scholars. The contentious nature of claims for restitution, and the lack of a consistent legal framework for dealing with these disputes makes relying solely on legal reasoning and other typical adversarial techniques less effective. Furthermore, the lack of proof of prior ownership makes international cooperation essential, as it is only with this cooperation that evidence of true ownership can be pieced together once again. Instances of international or trans-organizational cooperation are noteworthy.

While the Project employs both full time and part time staff, it also relies on assistance from other players in the restitution field, such as Holocaust Claims Processing Office (“HCPO”), which acts as an advocate for victims of the holocaust and seeks the return of their stolen assets. The HCPO plays a key role in the restitution process, and assists the Project by conducting provenance research, by acting as an advocate on its behalf, and by facilitating communication between the parties.

Dr. Epstein’s team also works with the National Archives in Ottawa, Canada, and lead investigator Willi Korte, a lawyer based in Washington, D.C., who is the co-founder of the Holocaust Art Restitution Project (link www.plunderedart.com). Both the team at Concordia University and the National Archives assist Dr. Epstein in the search for works that belonged to Max Stern. Lead Investigator, Willi Korte, who has worked on recovering each of the paintings recovered so far, assists with determining the provenance of paintings so that records of ownership can be established and later used in the restitution process. This task takes him all over the world.

The Project approaches the repatriation of Stern’s works through both legal and non-legal channels. However, Dr. Epstein emphasizes that the repatriation of most works is not actually achieved through legal avenues. This is because many countries do not consider forced sales to be theft and also because most countries do not have a specific legal mechanism to assist with these types of claims. Instead, moral arguments are used privately in what Dr. Epstein refers to as “a process of reconciliation” between the parties. The Project also presents more practical arguments such as pointing to the fact that a painting with tarnished provenance is not marketable. The success that has been achieved by using diplomacy and moral arguments demonstrate that shame on one hand and praise on the other are better suited to achieving the Project’s goals.

The reconciliation process utilized by the project is illustrated by the repatriation of Wilhelm Von Schadow’s Self Portrait of the Artist. This painting was discovered when a researcher from the National Archives in Ottawa, Canada found it in a catalogue for a 1967 Düsseldorf Museum Kunstplast exhibition. The catalogue for this exhibition listed the paintings location to be the Stadtmuseum. The Project contacted the museum directly, and the parties discussed the idea of returning the painting to the heirs of Max Stern. In the course of these discussions, both moral and legal arguments were presented and the museum ultimately agreed that the painting should be returned to Max Stern’s estate. However, instead of returning the painting physically, the parties agreed that the painting would remain in the Stadtmuseum Düsseldorf on the condition that the painting was acknowledged as being on loan from Stern’s estate. The parties also agreed that while on display, the painting would be used to remind those who visit the gallery of the painting’s history. As part of the educational component of the agreement, the parties agreed that the painting would be involved in two exhibitions: one on the life of Jewish people in Düsseldorf, and one specifically on Max Stern and his art collection. The museum also agreed to take on the role of providing education on provenance research.

Although reconciliation is preferred to the uncertainty and cost of litigation, the Project achieved a major legal breakthrough in the United States in the case of Vineberg v Bissonette. Vineberg v Bissonnette, 529 F.Supp.2d 300 (D.R.I 2007). Vineberg involved a claim by the Max Stern estate for the return of The Girl From Sabine Mountains by Franz-Xaver Winterhalter. At the time, the painting was owned by Maria-Louise Bissonette, the step-daughter of Dr. Karl Wilhelm, who had purchased the painting from the Lempertz Auction House in 1937. In this case, Chief District Judge Mary Lisi recognized that the forced sales of artworks under those circumstances were equivalent to theft, and ordered Bissonnette to return the painting to the Stern estate. Although the establishment of this legal principle is significant, Dr. Epstein cautions that the judgment is limited to the United States and does not assist with the repatriation of works that are in other countries such as Germany, where most looted paintings are still located.

To date, the Max Stern Art Restitution Project has recovered twelve of Max Stern’s paintings and continues to locate and negotiate the repatriation of his remaining collection . Stern’s works have been found in auction houses, a German casino, and in private collections. Some of these recovered works are now on loan to museums and foundations. Some examples being Aimee, a Young Egyptian by Emile Vernet-Lecomte which is on loan to the Montreal Museum of Fine Arts and  Portrait of Jan Van Everdyck by Nicolas Neufchatel which is on permanent loan to the Jakober Foundation. Other paintings, as previously mentioned, have been sold to finance the Project. Through the sponsorship of conferences and other educational events such as The Israel Museum Conference “Justice Matters: Restituting Holocaust-Era Art Artifacts” (2008), the Project has not only contributed significantly to ensuring that efforts to repatriate works of art stolen by the Nazis during the Second World War remain relevant, but has also become an important source of information and guidance for individuals and similar organizations that also seek the return of these precious works.

Sources:

*About the Author: Ryan Igel is a second year student at the University of Ottawa Faculty of Law, with an interest in the intersection of art and law. Ryan is particular interested in the restitution of artworks looted during the Second World War. He can be reached at rigel064@uottawa.ca.

The author would like to thank Dr. Clarence Epstein, Director of the Max Stern Art Restitution Project, for his time during telephone interviews.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advice. Instead, readers should seek an attorney with any legal questions.

Whose Rights? Anish Kapoor’s “Dirty Corner” Exposes A Battle Between Artists’ Moral Rights and The Rights of the Public

By Adrienne Couraud*

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Anish Kapoor’s Dirty Corner, before and after vandalism.

In 2008, President of the L’Établissement public du château, du musée, et du domaine  national de Versailles, Jean-Jacques Aillagon debuted a series of solo art shows and temporary art installations at the house and gardens of the Chateau de Versailles. Beginning with the summer solo retrospective of American artist Jeff Koons, the program has grown both substantively, including past artists such as Takashi Murakami (Summer 2010), Joana Vasconcelos (Summer 2012), and currently, Olafur Eliasson (Summer 2016), as well as procedurally, expanding from a seasonal to a year long program. In 2015, the contemporary art program of Versailles offered artist Anish Kapoor a solo show to integrate his sculptures within the spatial challenges the house and Versailles gardens present. As President of the Palace of Versailles Catherine Pégard states, “[Versailles] is not a museum or a gallery or an exhibition space.”

In his own words, Indian-born but British-raised artist Anish Kapoor describes his raw-material born sculptures as “talking” about himself. Kapoor’s sculptures emulate a “void” straddling the duality of  “something, even though it is really nothing.” Kapoor originally described his 2015 “Dirty Corner” installation destined for Versailles , a steel-and-rock sculpture over sixty meters long and ten meters high, as “the vagina of the queen who is taking power,” but later retracted his statements to focus on his message: “to create a dialogue between these great gardens and the sculptures”.

After the sculpture was installed it was subject to repeated vandalism attacks and Kapoor declined to remove it “to bear witness to hatred”. Following the complaint about the Kapoor’s “Corner” launched by a right-winged politician and Councilor of Versailles Fabien Bouglé, an administrative French court ordered the covering of anti-Semitic graffiti on artist Anish Kapoor’s installation, Dirty Corner, at the Palace of Versailles [“Versailles”] in September 2015. Mr. Bouglé filed a complaint with a French public prosecutor against Mr. Kapoor and Catherine Pégard, President of Versailles, for “inciting racial hatred, public insults, and complicity in these crimes,” after Kapoor decided to leave the vandalism as a public testament, “belonging to anti-Semitism that we’d rather forget.”

The Dirty Corner Court Case

Prior to the court decision, Versailles announced plans to alter Kapoor’s installation by covering the vandalism with a shiny gold foil against the faded brass structure, leaving the defacement as an obvious disruption of the work – a process that was expedited following the court decision. Despite artist’s meeting with French President François Hollande, who declared the defacements “hateful and anti-Semitic,” Kapoor explained to the French newspaper Le Figaro, “I had already questioned the wisdom of cleaning [the installation] after the first vandalism.” The French Minister of Culture, Fleur Pellerin, stated she respects Kapoor’s decision but found the public debates thus spurred “extremely interesting and raise the question of creative freedom.”

The Tribunal Administratif de Versailles released a statement about the decision deeming the vandalism a “serious and clearly illegal breach of fundamental liberty.” Though the court acknowledged the moral rights of artists, “this freedom has to be reconciled with respect for other fundamental liberties,” alluding to the requisite for public peace. The public nature of Kapoor’s installation required that the court ensure protection to “everyone from attacks on their human dignity.”

Kapoor reacted to the court’s decision in a phone interview from Moscow at the opening of his exhibition at the Jewish Museum and Tolerance Center, declaring the court’s decision a “perverse reversal” of his accord. “Without proper public debate and proper public exposure for culture,” Kapoor proclaimed, “we are in a fascist state.” Kapoor’s installation was vandalized once prior to the court decision and, thereafter, three additional times, to which Kapoor maintained, “I don’t want to see it on the work; I find it vile.” In his steadfast battle against racial hatred, however, Kapor has “refused to remove it and pretend it didn’t happen,” raising important questions concerning the boundaries of  aesthetic taste and artistic value.

What Are Moral Rights?

“Droit moral”, or moral rights, stem from the Kantian and Hegelian concept of transferring an artist’s personality into a work and refers to the right of an artist to control his work. Moral rights protect the personal value, rather than the monetary value, of a work. Under American Law, inalienable moral rights are have more limited jurisdictional protections than in other jurisdictions, as they are protected under judicial interpretation of copyright and trademark law, coupled with 17 U.S.C. §106A, or the Visual Artists Rights Act of 1990 (VARA), which protect moral rights for the life of the artist.

Prior to VARA, U.S. legislative history reveals the American endeavor to define moral rights as “derivative works”, or artistic works based on the work of another artist, demonstrated within the Copyright Act and the Lanham Act, which defines trademarks and unfair competition. After VARA was passed, in the United States moral rights automatically vest within an artist but are limited to a “work of visual art,” granting two particular rights: the right of attribution and the right of integrity. The right of attribution allows an artist to associate or disassociate his name from his work of visual art. The right of integrity prevents both the intentional modification of his work of visual art if the modification is likely to harm the artist’s reputation and the destruction of any work of visual art protected by a recognized stature.

Under European Law, however, copyright law typically protects inalienable moral rights perpetually. Under French law particularly, copyright law protects four moral rights: the droit de divulgation; or the right of disclosure, the droit de repentir ou de retrait, or the right to affirm or disaffirm works previously publicized works; the droit de paternite, or the right of attribution; and the droit au respect de l’oeuvre, or the right of integrity. French courts have refined the right of integrity to allow owners of physical works the right of reasonable use and the right of reasonable adaptation without gross distortion.  For example, French moral rights do not expire, regardless of the number of created copies of a work, while American moral rights more rigidly limit works based on the number of copies created.

The Dirty Corner’s Effect on Moral Rights

The French court decision affecting Kapoor’s Dirty Corner appears to place two additional refinements on moral rights in France because of the work’s public location. First, the public installation of Kapoor’s work subjected it to a public order. Second, the public installation of Kapoor’s work subjected the public to “protections of human dignity.” Though the court recognized Kapoor’s moral rights, the moral rights could not outweigh “other fundamental liberties” of the public, alluding to the requisite for public peace over artistic scandal.

“It’s a terrible, sad thing,” Kapoor announced in his reaction to the court decision. “France is weird, I don’t understand it,” Kapoor added. “It doesn’t take in the full context. We’re going to take the case to appeal and we’ll see what happens.” Kapoor continued, “[w]e have to experiment in public, it’s our role as artists, that’s how society grows. If we stop that, we might as well live in a fascist state.” For now, however, Kapoor will have to channel his determination to test the creative and cultural limits of France outside of the Palace of Versailles.

Sources:

*About the Author: Adrienne Couraud (J.D. Candidate 2017) is a student at Brooklyn Law School. She may be reached at adrienne.couraud@brooklaw.edu.

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

It Takes Two to Tango: The Importance of Artist-Gallery Contracts

By Scotti Hill*

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Creative Commons.

Of course galleries are venues of intellectual engagement and social activity, but it can be easy to forget that they also act as hubs for commercial exchange. The same mechanisms that govern relationships between blue-chip artists and mega-galleries ought to be in place to protect emerging artists and pop-up galleries as well. Beneath the veneer of originality and artistic merit lie monetarily-driven representation agreements and consignment contracts. The status quo is driven by mutual interest: galleries need artists to create their inventory so their clients have something to buy, and artists need galleries for their infrastructure and access to art buyers. By creating a roadmap that enables both parties to navigate their working relationships, contracts are at once practical and imperative. So, given the importance of a well-drafted and carefully negotiated contract in almost all areas of commerce, why do artists and galleries often fail to formalize the nature of their relationships in contractual form?

On July 19, 2016, Center for Art Law hosted an art law mixer entitled “Good Fences Make Good Contracts” to explore the question of contracts between artists and galleries. As a follow up, this article examines the intricacies of standard representation and consignment agreements, while also delving into the legal basis for such contracts–namely the Uniform Commercial Code Sect. 9-102 and the New York Arts and Cultural Affairs Law §12.01, Artist and Merchant Relationships. To illustrate benefits of having carefully crafted contracts between artists and galleries, some high-profile relationships, such as the representation and the rumored split between Richard Prince and the Gagosian Gallery highlight select  issues that may arise in an artist-gallery relationship.

Introduction to the Standard Artist-Gallery Contract

Screen Shot 2016-08-15 at 1.04.59 PMWhen entering into a commercial relationship, an artist or gallery may choose to draft a standard representation agreement whereby the gallery agrees to work as an agent on the artist’s behalf. The scope of this agency is negotiated by the parties, as some galleries hope to serve as an artist’s exclusive agent in a geographic area (New York City, for example), while others agree to serve as agent for one specific medium or collection the artist produces. Such agreements set provisions for matters like how revenue is shared after a sale, whether the gallery receives commissions on work sold from the artist’s studio, and the duration and scope of consignment. The following items are also commonly included in artist-gallery contracts:

  • Duration of contract including renewal and termination clauses;
  • Commission structure, terms of payment and other accounting procedures;
  • Transportation procedures;
  • Gallery promotion, marketing and copyright;
  • Coverage and provisions of insurance policies.

After establishing representation with a gallery, artists then consign their artwork to them for safekeeping with the expectation the gallery will sell their inventory. By definition, consignment is the act of assigning the property of one party (consigner, be it an artist or a collector) to that of another (consignee, here a gallery), for sale under contract. As part of the larger representation contract, a consignment agreement should list all the works given to a gallery by the consignor, with an authority to sell a specified group of the artist’s work and providing an indexical record of works in the gallery’s possession.

Uniform Commercial Code (UCC) Sect. 9-102, and New York Arts and Cultural Affair Law §12.01, Artist and Merchant Relationships

While the Uniform Commercial Code is the overarching body of laws concerning the sale of goods and commercial transactions federally, each state has adopted its own commercial code. UCC Section 9-102 sets guidelines for parties engaging in commerce regardless of the existence of a written contract. As it relates to the consignment relationship between artist and gallery, the UCC dictates important provisions that have been upheld over time by case law, namely the criteria and value of goods classified under ‘consignment’ and consignor’s rights in the event of bankruptcy. See Jacobs v. Kraken Inv. Ltd., (In re Salander-O’Reilly Galleries, LLC), 506 B.R. 600 (Bankr. S.D.N.Y. 2014)

In addition to the UCC, thirty-one states have adopted statutes to address the specific circumstances governing art transactions. In New York, for example, the New York Arts and Cultural Affairs Law (NYACAL), Article 12, provides a governing structure for interpreting contracts between artists and galleries. On November 6, 2012, New York’s consignment law was updated to include additional protections for artists by imposing stricter measures on galleries and dealers as consignors. The updated NYACAL addresses three fundamental weaknesses in earlier consignment law: requiring dealers and galleries to place sale funds in a protected trust, awarding attorneys fees for successful petitioners and requiring that critical sections of the consignment agreement be memorialized in writing. The 2012 amendment directly addresses the UCC’s problematic rendering of consigned artwork eligible for seizure by creditors, which is perhaps one of the UCC’s most controversial points.

Before the 2012 revision to the law, creditors could legally seize artworks in a consigner’s possession in order to fulfill unpaid debts. Although galleries do not own artworks on consignment, the creditor exists as a third party outside of, and therefore not bound by, the terms of a contract forged between the artist and gallery. The lack of solid legal remedies for consignors is what has propelled many states to revise their laws to deal specifically with the consignment of art, while in New York, the mammoth Salander-O’Reilly Galleries lawsuit became a catalyst for the amendment.

As such, an important provision exists in many amended state laws: that the gallery be rendered trustees to the artist’s property, which necessitates they hold revenue from the sale of an artwork in a special trust–apart from other gallery funds–that will be paid in full to the artist at an agreed upon time. This amendment works to 1) prevent creditors from seizing consigned art because the value of such works is protected in a trust, and 2) protect trust funds from being improperly used by the galleries to fulfill other financial obligations.

Indeed both parties may take advantage of vague contractual terms or actively work against the creation of a contract. Amended laws aim to prevent this by adding specific fiduciary responsibilities for both parties. Ultimately, if the artist-gallery partnership exists in a state without a comprehensive consignment statute, the parties can, and should, provide through contract the provisions missing from state law.

Richard Prince and Gagosian Gallery Split

After more than a decade and a string of highly successful exhibitions together, news broke in June 2016 that Richard Prince and Gagosian Gallery were going their separate ways. Neither the  veracity of the news nor the details of the alleged split are known, but if true may be explained by the mounting costs from legal battles involving the pair in recent years, which implicate and name Larry Gagosian and his gallery as a contributory infringer.  See Graham v. Richard Prince, Gagosian Gallery, Inc., and Lawrence Gagosian, Cariou v. Prince, Gagosian Gallery, Inc. and Lawrence Gagosian, and Dennis Morris v. Richard Prince, Gagosian Gallery, Inc. and Does 1 through 10 inclusive.

As part of his famous appropriation work, Prince takes the copyright-protected work of other creators and repurposes it in new contexts. While critics and collectors have repeatedly lauded this process, photographers whose work has been used without permission have taken a different approach. From 2014-2016, three copyright infringement lawsuits were filed against Prince by photographers Patrick Cariou, Donald Graham and Dennis Morris. In Cariou v. Prince, 714 F.3d 694 (2nd Cir. 2013), the Second Circuit Court of Appeals held that Prince did not infringe the copyright of 25 of the 30 images he appropriated from Patrick Cariou’s collection of photographs under the fair use exception of copyright law. For his use of the remaining five images in the collection, Prince settled out of court. The infringement cases brought by Graham and Morris are ongoing.

As agents working on the artist’s behalf, galleries accompany artists through creative peaks and declines. While much is made about how important contracts are for artists, galleries are wise to incorporate a termination clause in the contract in order to guard themselves from potential problems that may arise in the course of the relationship. A well-drafted termination clause, for example, is helpful in providing a protocol for the  manner in which the parties can terminate their professional relationship; a termination clause affords the party on the receiving end of the “breakup” adequate time to prepare for the transition. This is particularly important in instances where the gallery has crafted an exhibition or otherwise made plans with specific artworks. A typical clause of this kind would require the party initiating the split to give notice of anywhere from one to three months to the other party.

We do not know if Prince had a contract with Gagosian, but at the very least, it is likely the two agreed upon such critical provisions as payment and consignment of inventory. Despite news of the split earlier this summer, Prince is still featured on Gagosian’s website, which may indicate the two have yet to part ways. And even then, the separation may only be temporary.  After all, artist Damien Hirst reunited with the Gagosian Gallery for 2016’s Frieze New York following a three year split.

Conclusion

Although many states have amended their consignment laws, still other states have yet to follow suit. In areas of the nation where art represents a decidedly small segment of the larger economy, less incentive exists to add in the necessary protections that have been greatly appreciated in large art markets. On a practical level, however, artists can protect themselves by being vocal about their desire for a consignment contract. Contracts create a roadmap for the artist-gallery relationship and can offer clarity  if/when any unforeseen grey areas arise in the course of doing business together. When entering into a business relationship with a gallery, artists are wise to seek out feedback from their peers about the gallery’s reputation and its willingness to negotiate mutually beneficial terms at the outset. Various resources exist online, most important of which are copies of the standard representation and consignment agreements that can serve as a starting point for both parties. Ultimately, if an artist is faced with unique circumstances relating to their practice or needs, they may wish to seek legal representation before, and oftentimes during, their formal acceptance of a gallery’s offer of representation.

* * *

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Photo by Luis Nieto Dickens | @vla_newyork

On July 19, 2016, Center for Art Law (the “Center”) hosted “Good Fences Make Good Neighbors,” a Summer Art Law Mixer made possible with support from the New York Volunteer Lawyers for the Arts. The event focused on contracts between artists and galleries and how attorneys negotiate on behalf of their clients. Moderated by the Founding Director of the Center, Irina Tarsis, the panel featured three speakers, all attorneys specializing in art law. Dean Nicyper, a litigator with Withers Worldwide, and involved with revising the NYACAL law, provided a general overview of the legal considerations of artist-gallery contracts, Amelia Brankov of Frankfurt Kurnit Klein & Selz, spoke about the ways in which artists can advocate on their own behalf in forging contracts with galleries and Katherine Wilson-Milne of Schindler Cohen & Hochman, commented on what considerations galleries have when drafting contracts with artists. Attendees, including practicing attorneys, students and artists, asked questions ranging from the appropriate etiquette of negotiating such contracts to how to best situate oneself to prevent and later reconcile potential legal issues that arise from this union. One main take-away from the evening was that that clear terms of a consignment agreement between artists and dealers make for good symbiotic relations between the two key players in the art market.

Select Sources:

About the author: Scotti Hill is a J.D. Candidate, 2018 from the S.J. Quinney College of Law at the University of Utah. She serves as a summer 2016 legal intern for the Center for Art Law, and works as an art critic and curator. Prior to law school, she received a Master’s Degree in art history and visual studies. She can be reached at scottiaustinhill@gmail.com

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

HEAR and the Guelph Treasure Recovery Efforts: Restitution in Review

By Nina Mesfin*

On June 7, 2016, the Senate Judiciary Committee heard a bipartisan-backed piece of legislation called the Holocaust Expropriated Art Recovery (HEAR) Act, S. 2763, 114th Cong. (2016). As recently reported by Center for Art Law and elsewhere, the HEAR Act aims to allow “civil claims or causes of action to recover artwork or other cultural property unlawfully lost because of the persecution during the Nazi era, or for damages for the taking or detaining of such artwork or cultural property.” In other words, the HEAR Act proposes a federal statute of limitations on restitution claims as opposed to statutes of limitation that vary by state in order to “lift unfair restrictions from heirs’ claims.” In addition to garnering support from both the Republican and Democratic parties, the HEAR Act also offers advocates outside of the political realm.

Screen Shot 2016-08-09 at 11.21.25 AMFollowing the bill’s introduction, on June 7th actress Helen Mirren testified before the Senate on behalf of the bill. Mirren’s support, in part, stems from her recent portrayal of Maria Altmann in the film Woman in Gold (released in 2015). Altmann was a Jewish woman who successfully reclaimed five Nazi-looted works by Gustav Klimt from the Austrian government in the landmark case Republic of Austria v. Altmann (03-13) 541 U.S. 677 (2004) 327 F.3d 1246, affirmed. The Altmann case set a legal precedent in which the Foreign Sovereign Immunities Act (FSIA) was applied retroactively, allowing a sovereign body to be tried in a U.S. court.

The timing of Woman in Gold, which has drawn public attention to Altmann’s success, coupled with recent congressional efforts to facilitate the restitution of Nazi-looted works, may impact the outcome of other restitution claims. One of these cases involves the Welfenschatz or Guelph Treasure– a collection of medieval art currently in the Kunstgewerbe Museum in Berlin—with an estimated value of $250 million dollars. On February 23, 2015, the heirs of the art dealers who sold the Guelph Treasure to Germany filed a civil action in a U.S. district court against Germany and the Prussian Cultural Heritage Foundation. The case of the Guelph Treasure will test further the limits of both the U.S. government’s dedication to Holocaust-era restitution claims and ability to broker restitution deals.

What is the Guelph Treasure?

The Guelph Treasure, consisting of 82 gold, silver and gem encrusted liturgical objects from the Church of St. Blaine in Brunswick, Germany, and according to art historian Christina Nielsen, it is considered to be “the greatest group of medieval objects ever offered for sale.” The objects range in date from the 8th to the 15th century and the majority are works of German craftsmanship while other notable pieces are Italian and Byzantine in origin. One of the most extraordinary characteristics of this collection is its indisputable authenticity; records indicate that prior to its auction, the Treasure has been in continuous care of the same noble German family for more than 800 years.

Subsequent Sales of the Treasure

Duke Ernst August was the last of his German ancestors to possess the Guelph Treasure. Due to economic hardship in 1928, the Duke was forced to put a price on what was considered a collection of “incalculable intrinsic value” because of “its antiquity and art-historical importance”(Nielsen, 442). To the dismay of many German citizens and the State itself, the Duke sold the Treasure to a consortium of Jewish art dealers in 1930: Julius F. Goldschmidt of Frankfurt, Berlin, and New York and Z.M. Hackenbroch and J. Rosenbaum of Frankfurt. Although the Duke intended for the collection to stay together, the consortium of art dealers, having failed to resell the collection in its entirety, began to sell off pieces of the Treasure.

After meticulously cataloging the collection, the dealers began selling, or rather attempting to sell, portions of the Guelph Treasure in Germany. As Germany frowned upon the sale of what it considered to be cultural patrimony, the new owners, a consortium of Jewish art dealers, then tried to sell the collection in the United States. The Guelph Treasure was first exhibited in New York in 1929, and by 1934, the consortium sold 40 of the Treasure’s 82 pieces to several museums in the United States, including the Cleveland Museum of Art (Nielsen 443). In 1935, the remaining 42 pieces of the Treasure were sold to the State of Prussia for 4.25 million Reich marks, or $1.7 million. High-ranking Nazi official Hermann Göring oversaw the acquisition and later gifted it to Adolf Hitler. It is the legality of the second sale in 1935 that the heirs of the consortium are disputing.

Appearing before the German Advisory CommissionScreen Shot 2016-08-09 at 11.27.45 AM

Before their U.S.-based lawsuit, the heirs of art dealers J. and S. Goldschmidt, I. Rosenbaum and Z.M. Hackenbroch appeared before the German Government Advisory, also called the Limbach Commission. The Commission is a joint initiative of the Federal Commissioner for Cultural and Media Affairs and the Länder and the National Association of Local Authorities; it invites claims concerning Nazi-looted property that public institutions in Germany currently possess. The Commission serves as a mediator between these public institutions and former owners as well as their heirs, hearing cases and offering resolution recommendations. The New York Times reported that the heirs’ lawyers cited the “climate of fear and uncertainty for the [dealers’] futures in which Jews in Germany found themselves in 1935,” arguing that these dire circumstances suggest that any “purchase by the state from Jewish businessmen must be considered as having taken place under duress.” The lawyers representing the heirs attempted to prove that the sale was, in fact, forced by explaining that the dealers sold the pieces for $4.3 million less than they had paid for it five years earlier. The panel attributed the ten percent market price decease to the economic downtown wrought by the Great Depression.

After contemplating this argument, in March of 2014 the Commission’s panel recommended that the 42 “jewel-encrusted, intricately wrought silver and gold crucifixes, altars and other relics of the Guelph Treasure should remain in the possession of the state-run foundation.” Bloomberg News noted that the Commission went on to state that “[f]ar from selling under duress, the consortium had been attempting to unload the Guelph Treasure for years,” pointing to the correspondence among consortium members celebrating the sale.” The Commission also noted that the Guelph Treasure is an exception to the Washington Conference Principles on Nazi-Confiscated Art, which all German museums have agreed to uphold. The Principles are a set of guidelines that maintain that “any art object sold by Jews for less than its fair value during this period (Jan. 30, 1933, through 1945) is a candidate for restitution,” a period that includes the Guelph Treasure.”

This ruling, in favor of the Kunstgewerbe Museum is one of many made by the Commission that has been met with criticism. As art journalist Catherine Hickley reports, the Limbach Commission has recently “come under fire for a lack of transparency, the length of time it takes, failure to appoint a Jewish member and the low number of cases it has mediated.” The Commission has only mediated thirteen cases since its founding in 2003, whereas its Dutch counterpart has issued more than 140 since 2002.** In July of 2016, Germany’s culture minister, Monika Gütters, actually announced plans to reform the Limbach Commission.

The Civil Lawsuit over the Treasure

Screen Shot 2016-08-09 at 11.32.39 AMAlmost a year after the Commission made its non legally binding recommendation, the heirs to the Guelph Treasure, filed a civil lawsuit in U.S. District Court for the District of Columbia. Philipp et al. v. Federal Republic of Germany et al., 15-cv-00266 (D. D.C.). According to a Washington Jewish Week article, the seventy-one page complaint alleges that the consortium sold the 42 pieces to the State of Prussia “via a manipulated sham transaction spearheaded by Dresden Bank, which was acting on behalf and by order of the two most notorious Nazi leaders and war criminals,” Göring and Hitler. The complaint further notes that the heirs used the fact that the alleged forced sale was made for less than 35 percent of its actual value and that the payment “was then subjected to flight taxes that were demanded so the Jewish dealers could flee Germany,” as evidence backing their claim. One of the dealers, Hackenbrock,was able to leave Germany in 1935, although died shortly thereafter in London in 1937. Details concerning the other two dealers, Rosenbaum and Goldschmidt, are unknown.

In order to justify filing this suit in a U.S. court, attorneys for the claimants invoked the Foreign Sovereign Immunities Act, which “provides jurisdiction over foreign states that conduct business in the U.S. via exhibitions and other museum-related activity.” According to O’Donnell, one of the attorneys representing the claimants, FSIA’s applicability to this case is straightforward, as “Jewish victims of persecution like the Plaintiffs’ ancestors are victims of takings in property in violation of international law.” He further explains, “[a]s a result, and because the Defendants are engaged in commercial activity in the United States, this case presents precisely the category of claims over which § 1605(a)(3) of the FSIA, the expropriation exception, creates jurisdiction.”

In March 2016, Germany and the Prussian Heritage Cultural Foundation responded by filing an eighty-five page motion to dismiss the case, contesting the jurisdiction of the U.S. courts. Within the motion, the defendants contend “that the persecution and expropriation of property from its Jewish residents were a sufficiently internal affair so as not to be a violation of international law.” O’Donnell has described this motion as “revisionist” and “troubling.” Most recently, on May 11, 2016, claimants filed an opposition to the motion to dismiss. The latest filing in the case was in June a reply to opposition to motion re motion to Dismiss the Plaintiffs’ First Amended Complaint. Now we are waiting for the court to review the filings.

Conclusion

The pending case involving ownership of the Guelph Treasure has brought two interesting issues into focus. The first is whether the blanket application of forced sales to an entire time period, in this case the years immediately preceding and spanning WWII, is legitimate, not taking into account the market or the profession of the seller, i.e. an art dealer who is almost always in the process of making a deal. The Guelph Treasure also tests the authority of advisory commissions with no binding power, as rulings made by the Limbach Commission are unenforceable. On the other hand, there are several other European arbitrating bodies whose opinions are binding, such as the Austrian Restitution Binding Commission and the Dutch Advisory Committee on the Assessment of Restitution Applications for Items of Cultural Value and the Second World War. As Hickley points out in her article “German minister promises to reform Limbach Commission after mounting criticism,” unlike the Limbach Commission, the Austrian and Dutch advisory committees do not require both parties to agree in order to mediate disputes.

In challenging the Limbach Commission’s clout, the case of the Guelph Treasure may bring a foreign body into conflict with the crux of the U.S. court system. It will be interesting to see if and how the U.S. judicial system, in its dealings with the Guelph Treasure, will impact the authority enjoyed by European advisory board’s ruling on contested art. As Elazar Barkan explains in The Guilt of Nations: Restitution and Negotiating Historical Injustices, restitution as a means of acknowledging gross historical injustices is a relatively novel phenomenon. Nowadays, it “is a large part of the growing attention being paid to human rights.” The question becomes: in which instances is restitution warranted and in which does it potentially exploit society’s overeagerness to atone for past atrocities? Furthermore, at what point, if at all, is it appropriate for a third party state to hear these claims and issue rulings? While the United States at times offers a venue to bring restitution claims, the outcome and the cost of these claims is unpredictable.

Select Sources:

**There are currently five restitution commissions: United Kingdom, Austria, France, Germany, and the Netherlands. In 2007, the United States government considered establishing its own restitution advisory commission, to no avail.

About the Author: Nina Mesfin is a Summer 2016 legal intern at Center for Art Law. She is a rising junior at Yale University majoring in Ethnicity, Race and Migration and concentrating in Art, Literature and Narratives of Race and Ethnicity. Nina is also a scholar in the Yale Multidisciplinary Academic Program in Human Rights.

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

5 Charged with Selling Non-Genuine Native Goods: A Violation of the Indian Arts and Crafts Act

*By Lillia McEnaney

Center for Art Law previously reported In Brief that, in March 2016, the U.S. Attorney’s Office in the District of Alaska charged a handful of individuals with violating the 1990 Indian Arts and Crafts Act (IACA). Following is an in depth background of the case and a discussion of relevant statutes

The Indian Arts and Crafts Act

Screen Shot 2016-08-05 at 4.07.08 PM.pngPassed in 1990, the Indian Arts and Crafts Act is a federal truth-in-advertising law that prohibits the sale of goods that incorrectly claim to be Native produced. In the United States, there are 1.9 individual Native people who are members of the 567 state and/or federally recognized tribes. If an artist or an art dealer fraudulently claims that any of their wares were produced by an individual or group of Native Americans, they are in direct violation of IACA.

The current law is based off a 1935 Act of the same name that aimed to “promote the development of Indian arts and crafts.” This original legislation also created the Indian Arts and Crafts Board (IACB). The IACB’s purpose is to enforce IACA and ensure the “genuineness and quality” of Native works on the art market. Today, the IACB has the power to refer complaints to the FBI or to the Secretary of the Interior for investigation. After reviewing the investigatory report issued by either the FBI or the Secretary of the Interior, the IACB may recommend to the Attorney General that charges be filed against individuals who violate the IACA. Additionally, the IACB can create and register trademarks that are authentically Native American or Alaskan. In 2000, Congress amended the IACA to improve its enforcement procedures.

If found guilty, an individual who violates the IACA may face up to a $250,000 fine or imprisonment for no more than five years. If found guilty of more than one charge, that person may be fined up to $1,000,000 and imprisoned for up to 15 years.

Past IACA Cases & Criticism

A 2011 Government Accountability Report showed that the IACB received approximately 650 violation complaints between 2006 and 2010. The report indicated that 150 of these complaints suggested substantial IACA violations and 117 cases needed additional investigation. After receiving a complaint, the IACB can either pass the information to the FBI, to the Secretary of the Interior, or recommend to the Attorney General that charges be filed. Despite the fact that a violation of Indian Arts and Crafts Act is a federal matter, none of these cases have ever filed in federal court.

In total, only five people in five separate cases have been found guilty of violating the IACA between 1990, the year  Congress passed the IACA, and 2010. Two of these cases were dismissed and violators in the remaining three were sentenced to either probation or up to 13 months’ jail time.

Few Indian Arts and Crafts cases result in prosecution because the IACB focuses on preventative education rather than practical enforcement of the law. Reportedly, one of the Board’s most common methods of investigation is to send a form letter to suspected offenders. The letter detailed the guidelines put forth by IACA and described the penalties of violation. 

Additionally, the U.S. Government Accountability Office (GAO) suggested that reliable and objective data on the size of the market for Indian arts and crafts is sparse. Limited market data makes it even more difficult to propose a plan to stop this practice  because it is not always easy to tell the difference between a fake and an authentic piece, even for experts. Wayne Bobrick of Wright’s Indian Art in Santa Fe has said that “[t]here are some things that are obvious, but if they do it well enough, anyone can be fooled.” Additionally, though it is most common for non-Natives to claim to be Native, it is also common for some Native Americans to buy imported goods and pass them off as their own, authentic work, according to Tony Eriacho, a Native artist and activist. Taking these factors into account, the GAO also determined that conducting a more thorough and complex study would be costly and would most likely produce similarly biased results.

One substantial criticism of the IACA is that the Act does not protect artists that do not belong to federally recognized tribes. Currently, there are approximately 250 tribes in the United States that are not recognized by the Bureau of Indian Affairs or by their respective state’s government. Artists that belong to any of these communities are not protected by the Indian Arts and Craft Act, and are not even able to market their arts and crafts as “Indian-made.” This has massive implications, as many non-federally recognized Natives are no longer able to sell their authentic wares in fear of criminal prosecution. Lack of representation here is, of course, just one of many legal disadvantages that unrecognized tribes currently face.

Case Study: Five Charged with Selling Non-Genuine Native Goods

In May 2014, a team comprised of the Department of Justice, the IACB, and the Alaska Attorney General’s Office Consumer Protection Unit began an investigation of four Alaskan business owners under the accusation of violating the Indian Arts and Crafts Act. The investigation was prompted by complaints filed by summer tourists in Alaska. The tourists were allegedly told that various bone carvings that were for sale were made by Alaskan Native peoples. This inspection, spearheaded by the DOJ, is the result of an investigation conducted by the United States Fish and Wildlife Service (USFWS) that previously found these businessmen guilty of misrepresenting their goods. An undercover USFWS agent paid $1,985 for the non-genuine pieces at the store.

The people charged include “Vinod ‘Vinny’ L. Sippy, 38, d.b.a. Diamond Island, Icy Strait, and Gemstone Heaven; Juneau resident and business operator Norma M. Carandang, 60, d.b.a. Northstar Gift Shop; Puerto Rican resident and Ketchikan business owner Gabriel T. Karim, 33, d.b.a. Alaskan Heritage; Skagway resident and business owner Rosemary V. Libert, 56, d.b.a. Lynch and Kennedy Dry Goods, Inc.; and Libert’s seasonal employee, a resident of Huntington Beach, California, Judy M. Gengler, 65.” They are charged with, according to the DOJ, “the illegal misrepresentation of bone art carvings as made by Alaska Natives or Indians, when in fact they were made by local non-native carvers.”

When brought before the court, Sippy pleaded guilty, while Carandang pleaded not guilty. Because Sippy pleaded guilty, the arraignment also served as his sentencing. He “agreed to pay a $3,500 fine, make a $3,500 donation to the IACB, distribute a public apology letter and he will serve five years of probation.”

At the time of writing, the case was pending in the U.S. District Court for the District in Alaska.

UPDATE: On September 2, 2016, Ms. Libert was found not guilty of misrepresenting Native produced art in federal court on Friday. See Libert Letter to the Editor of the Skagway News.

Conclusion

In the 21th century, enforcement of IACA and regulating markets is becoming more difficult due to the growing online economy. E-commerce websites such as Etsy and eBay have “rapidly outpaced the law.” Though IACA protective mechanisms are strong, its Board may need  to reimagine the way in which the law is enforced in today’s digital economy.

The enforcement of IACA relies heavily on the public. When purchasing Native goods, purchasers should make sure to ask their art dealer for the artist’s information and for a written certificate for authenticity. If this cannot be provided, purchasers should consider giving this information to the IACB through a formal or informal complaint. Consumer information plays a vital role in the enforcement of the IACA and in maintaining a fair market for Native communities.

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*About the Author: Lillia McEnaney is an undergraduate at Hamilton College where she is studying Archaeology and Religious Studies and was recently appointed a Casstevens Research Scholar. Lillia is a research assistant in Hamilton’s Religious Studies Department, the Blog Intern for the Council for Museum Anthropology, the Webmaster for Art/Place Gallery, a 2016 Summer Intern for the Smithsonian’s National Museum of the American Indian, and an intern for the nonprofit organization SAFE/Saving Antiquities for Everyone. Lillia may be reached at: lmcenane@hamilton.edu.

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

Common European Heritage: The French and Dutch Government Joint Acquisition of Two Rembrandt Portraits

*By Ana T. Iacob

“Madame le ministre, Ladies and gentlemen, We hébben ze! Nous les avons! We have got them!’’

— Speech by Dutch Minister for Education, Culture and Science Jet Bussemaker at the official signing ceremony for the Rembrandt portrait purchase

On February 1, 2016, France and the Netherlands jointly acquired two works by Rembrandt van Rijn, the wedding portraits of Maerten Soolmans and his wife, Oopjen Coppit. This joint acquisition, otherwise known as the Rembrandt Treaty, was accomplished through an intergovernmental agreement signed by the French and Dutch Ministers of Culture, becoming thus one of the most expensive sales of Old Master paintings in history. Christie’s Private Sales channel facilitated the acquisition, which totaled €160 million for both portraits.

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Rembrandt van Rijn, Portraits of Maerten Soolmans and Oopjen Coppit (1634)

History of the Portraits

The two oil paintings, completed in 1634, represent the only full-length portraits painted by Rembrandt. In 1878, the portraits moved from the Van Loon collection in the Netherlands to France when they were purchased for the Rothschild Collection. The impending move to France spurred the  Dutch government to attempt to acquire the paintings for the first time in order to prevent them from leaving the Netherlands. However, that did not occur due to the exorbitant price of the works. Accordingly, the portraits remained in the Rothschild Collection in France until 2013, when the Rothschild family announced its intent to sell the pair.

Immediately, the Dutch government saw the opportunity to have both paintings return to their nation of origin: the Netherlands. In an interview with BNR Nieuwsradio, the Dutch Minister for Education, Culture and Science Jet Bussemaker said it would be “very undesirable” if the works were sold to “a rich oil state” instead of returning to the Netherlands. The Dutch parliament feared that if the Netherlands did not secure the works, the two portraits would remain outside their country of origin indefinitely.  

Sale of the Portraits

Both France and the Netherlands sought to individually purchase the portraits. According to Gary Schwartz, art historian and Rembrandt scholar, owning the portraits was a matter of national prestige for both the Netherlands and France. As early as September 2015, both the Rijksmuseum in Amsterdam and the Dutch government negotiated an agreement to bring €80 million to the table each in order to secure the paintings. Triggered by the eagerness of the Netherlands to acquire the works, the French Ministry of Culture, Fleur Pellerin, also offered €80 million to buy one of the portraits, with assistance provided by the Banque de France. According to Pellerin, France was ready to split the works with the Netherlands, even though there were no signs of agreement on the Dutch side and the uncertainty whether portrait owner Eric de Rothschild would even agree to separate the portraits.

The willingness of the Dutch government to massively contribute to the acquisition of the paintings surprised many. Arnold Witte, the head of art history at the Royal Netherlands Institute in Rome, noted that this would be the most expensive acquisition made by a public institution to this day. He further added that, given the current situation, if there is a will, there is a way to provide the necessary money. Indeed, the Dutch government had found a way to fund the purchase of a national treasure in the past: the government acquired Dutch national treasure “Victory Boogie Woogie” by Piet Mondrian in 1998 for 35 million. The public outcry in response to the government’s decision to spend such an amount at one time was widespread.

The desire of both countries to secure the masterworks for themselves clashed with the impossibility to pay the high asking price. A compromise was reached in the form of an intergovernmental agreement between France and the Netherlands, which stipulated that the Netherlands would own Maerten’s portrait and France would own the Oopjen portrait. The intergovernmental agreement further indicated that the works may never be separated from one another. To ensure that the portraits are always together, the pact contains firm provisions according to which the portraits will always be exhibited side by side, alternating between the Louvre and the Rijksmuseum. Both museums also agreed to incur joint responsibilities for the portraits. Furthermore, the agreement also allegedly memorialized the agreement to ban loans of the two portraits to institutions outside the two nations.

From a sequence of correspondence sent between the legal representatives of both parties, it turns out that the joint ownership transaction was supported by three legal documents. The documents included a protocol of cultural cooperation, which is a political document expressing the intent of the parties to engage; the intergovernmental agreement between the two countries; and, finally, the purchase agreement. The French representatives, in the explanations regarding French law, stressed the importance of mentioning that the contracts explain clearly that it is not a joint ownership, but rather a joint responsibility towards the paintings.  

Legal Ramifications of the Joint Purchase

Historically, France has been very protective towards its cultural heritage, as demonstrated by French patrimony laws regarding national treasures. In this fashion, article L 111-1 of the Code of French Heritage defines the notion of national treasure. Cultural assets that qualify as national treasures are works within public collections, historic monuments and those works of major interest for national heritage. If the work passes a set value and seniority threshold, it may be subject to an export license refusal. Accordingly, if an item is older than 50 years and valued at more than €150,000, it may not granted the export license and the work cannot leave the country for a period of 30 months–a period in which the French government or a private patron could raise the required amount to acquire the works. In this case, even though the two portraits satisfied the two national treasure qualification requirements, the export license was granted without even submitting documents for the review of the Advisory Board of National Treasures. The Louvre and the French Ministry invoked “lack of funds” as an explanation for the granting of the export papers, even though some questioned the influence of the Rothschild family on the expedience of the process.

According to French law, the joint purchase by two Museums and subsequent transnational ownership of the works would have been unprecedented and perhaps legally impossible. However, the French government circumvented this difficulty by the separate and individual ownership of each of the portraits by the two governments. Accordingly, the Louvre owns Oopjen’s portrait while the Rijksmuseum owns Maerten’s, which satisfied French acquisition legislation.

Reaction to the Sale

In France, the sale was met with harsh criticism. For example, the French publication, La Tribune de L’Art, had very strong opinion on the matter, and expressed disappointment that the Ministry of Culture and the Louvre did not declare the works as national treasures by 2013, thus making them then available for sale. Had the works been declared national treasure, the sale would have been delayed for 30 months, giving the chance to the French state or a private patron to acquire the works. However, the Louvre and the Ministry explained that even if they would have delayed the sale, it would not have been enough to raise the necessary funds.

Inevitably, Eric de Rothschild, the portraits’ owner before the sale to France and the Netherlands, was also targeted by criticism. La Tribune de l’Art accused him of betraying the spirit of his family’s patronage, going so far as to say that Rothschild “should have honored his name.” In their opinion, even though he had the right to sell the work to whomever offered the highest price, as a great patron of art and as a member of Société des Amis du Louvre, Rothschild should have approached the museum and settled for a price that would have allowed the paintings to remain in the country unconditionally.

   In the Netherlands, the opinion regarding this sale and the decision of the government to pledge such a big amount for the purchase varied. Dutch Parliamentary leader Alexander Pechtold played an important role in securing the Rembrandts. He led the campaign to raise the necessary funds for the sale and received praise for the fact that someone in his position would focus on works of Dutch cultural heritage. Dutch Minister Bussemaker explained that this was an opportunity that would never come again and, as such, had to be seized.

On the other hand, when asked on the street for their opinion, a number of individuals noted that in these times, such a great amount of money, spent at once, seemed excessive.

Conclusion

Joint ownership of artworks by two governments remains unusual and is not without complications. For example, in 2009 and 2012 respectively, two Titian paintings were purchased by the National Gallery in London and the National Gallery of Scotland for $147 million. Now, the status of this duo may be in jeopardy with the recent Brexit vote. Shared ownership of works, however, can be applied on smaller scales. Dual ownership of videos is occurring more often because it is logistically easier, such as with the joint acquisition of The Clock (Christian Marclay) by the Tate, the Centre Pompidou and the Israel Museum.

Although the examples above demonstrate other instances of dual acquisition, the joint purchase of the Rembrandt portraits is outstanding for a number of reasons: first, due to the record amount paid for the art by two nations and second, due to the unusual ownership arrangements between them. Pooling together extensive economic and political forces, both countries successfully secured two European masterpieces. It is unclear whether potential buyers of related artworks in the future will be able to use this dual acquisition model to guide their dealings, as the circumstances surrounding the Rembrandt portraits’ creation and ownership are unique in their own right. If nothing else, one positive outcome of the two nations cooperating is the the fact that for the first time in a long period, the portraits will be publicly displayed. Sales taxes, if any, seems to be owed exclusively to the French government.

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*About the Author: Ana T. Iacob is a jurist living in Amsterdam, the Netherlands. She has a Master in European Private Law from the University of Amsterdam and is interested in art and intellectual property law.

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

 

No Secrets about Money Laundering

By David Honig, Esq.*

Aside from drugs, art is the largest unregulated market in the world. ~ 

The Mona Lisa Curse  

Why does it seem like most notorious drug dealers and dictators have vast collections of art? Part of the reason is that most people love art and it happens to be easy to hide. Even though people’s interests and tastes may differ, the desire to collect or at the very least view art is consistent among large segments of the population. Read our recent review of “Possession: The Curious History of Private Collectors from Antiquity to the Present.”

There is however, a more sinister incentive to “collect” valuable art. Art, especially paintings on canvas by a select group of artists, is easier to move and store than other assets of similar value, such as precious metals or cash. Patricia Cohen, Valuable as Art but Priceless as Tool to Launder Money, N.Y. Times, (May 12, 2013), at A.1. As a moveable commodity, for example, if rebel forces are raiding a dictator’s palatial compound it would be very easy to pull a painting off the wall, remove it from its frame and escape with an asset worth millions of dollars.

In 2007 a Basquiat work titled Hannibal  was brought into the United States by Edemar Cid Ferreira, a Brazilian banker who purchased numerous works of art in a money laundering scheme. Id. Around the same time Ferreira smuggled art worth around $30 million out of Brazil to avoid paying debts owed. Id. At the time the painting was valued at $8 million USD – in order to match the value he would have needed to move 574.88 lbs of gold (using 2008 prices) or 176 lbs of $100 bills. A painting, then, is a more attractive commodity for holding value from illicit gains since both gold and paper money are heavier and harder to transport, and paper money can be traced. A painting on the other hand can be easily packed in one’s suitcase hidden between shirts, or rolled up into a yoga bag. In fact, it seems Ferreira did just that. According to the New York Times article, in order to enter the United States without documentation or taxation Ferreira had Hannibal declared as an unnamed painting worth $100. Id

More recently a gallery owner in Philadelphia pled guilty to money laundering. In 2011 federal agents raided the house of drug trafficker Ronald Belciano where they discovered $2.6 million dollars in a fish tank and art, worth $619,000, that was used to launder drug money. Jeremy Roebuck,  Philly.com (Jan. 25. 2015). After the raid, Belciano agreed to cooperate with the government to build a case against Nathan Isen, the owner of the gallery who sold him the art in order to launder money. Id. Roebuck introduced Isen to an undercover agent posing as a drug dealer. The agent, who was introduced as being a marijuana grower, made numerous references to growing marijuana and even apologized to Isen for the cash “smell[ing] like marijuana, [because] she stored it next to the drugs.” Id.

Art’s monetary value is not the only reason why it is often found in the homes of those with less than savory occupations. The secrecy and lack of regulation in the art market lends itself to a certain flexibility in the range of crimes such as money laundering. Money laundering is the process by which money obtained through ill means is “cleansed” and made to appear legitimately obtained. Often times in popular culture, businesses depicted as ‘fronts,’ such as restaurants, dry cleaners or other businesses are used for this purpose.

There is also the benefit of liquidity. When assets are liquid they can be traded more freely and turned into or used to purchase other assets. If someone has a net worth of $10 million but her net worth is solely derived from a painting that can never be sold is she really worth $10 million? If she can’t sell the painting she can’t obtain cash which means she can’t buy anything with the $10 million.

Just as beneficial as the relative liquidity of art is the notoriously secretive art market. There are various reason for this, such as avoidance of getting caught, embarrassment and safety. Some people are forced to sell their art collections because they need access to immediate cash or other types of transactions. Some do not want people to know they have enough money to purchase the works or that they own a particular work. According to an article cited by Fausto Martin De Sanctis’ Money Laundering Through Art: A Criminal Justice Perspective, “Christie’s only asks the sellers where the proceeds from the sale ought to be deposited…” Fausto Martin De Sanctis, Money Laundering Through Art: A Criminal Justice Perspective 115 (Springer 2013). Whatever the reason for this secrecy, it allows for the market to be abused.

One reason for this secrecy is the lack of legal requirements for artworks to be registered. De Sanctis points out that this feature makes art a better vehicle than real estate for money laundering. Real estate is often used for money laundering for the same reason as art, high value, market speculation and cash purchases. Id. at 58. Additionally, art and real estate “are classified as non-financial, and therefore lack the regulation and rigid, standardized controls in pace for the financial sector.” Id. at 58. A key difference is the incentive to record ownership in real estate with local government, to create security in ownership. In fact, De Sanctis notes that “regulatory agencies pay little attention to the art world.” Id. at 59

In reference to the art market, economist Nouriel Roubini points out, “there is no tracking of it through the financial system and you can park it into a freeport” Interview by Cristina Alesci with Nouriel Roubini, Professor, NYU Stern School of Business (May 11, 2015). A freeport is a warehouse where valuables are stored. By storing art in a freeport the owner of the work, or valuables, avoids paying taxes for as long as the work is stored there. David Segal, Swiss Freeports Are Home for a Growing Treasury of Art, N.Y. Times (July 21, 2012). Freeports are also notoriously secret. In fact, people who work there do not know what is being stored in the adjacent vaults. Id.

The secretiveness of both freeports and the art market makes money laundering through this avenue is so lucrative. Once a person purchases a piece of art, she can ship it to Geneva, Delaware or whatever freeport she chooses, store it there indefinitely and avoid paying taxes for as long as the art resides in that freeport. Since that work was purchased in secret, does not need to be registered, and is stored anonymously in a warehouse its existence as an investment is shielded until the owner finds an opportune time to sell. 

Although the regulations on the art market are minimal, it is not completely devoid of regulation or safeguards against money laundering. First, 26 U.S.C. 6050I and 31 U.S.C. 533 requires any party who receives cash in excess of $10,000 in the same, or two related, transactions to file a report with the IRS and Financial Crimes Enforcement Network respectively. Both of these laws require the recipient to state the amount of cash, the name of the paying party, the nature of the transaction and date of the transaction. Further, both have a catch-all provision that would allow either the IRS or the Financial Crimes Enforcement Network to ask for more information. The European Commission requires a similar filing for cash purchases over €7,500 and Switzerland’s Federal Assembly, its parliament, places restrictions on cash transactions that exceed CHF 100,000. Hili Perlson, Switzerland Cracks Down on Art Market with Tighter Anti Money Laundering Laws, artnet news (June 2, 2015).

The Federal Assembly also passed a law, which went into effect on January 1, 2016, that creates more regulation for freeports. Henri Neuendof, Switzerland’s Tough New Stance on Freeports Will Shake the Art World, artnet news (November 19, 2015). Among new regulations are a six month time limit for storage of goods to be exported and a requirement that freeport’s keep an inventory of goods stored and their owners. Id. Since the money laundering necessitates secrecy there is no real way to tell if preemption methods will be enough. According to the NYU Stern School of Business Professor, Nouriel Roubini, self-regulation is probably the best way to move forward. There may not be an easy solution but it is worth exploring new avenues that will prevent the use of art for the facilitation of illegal transactions and from those works being hidden away from the sight of the world.

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About the Author: David Honig is a post graduate law fellow at the Center for Art Law. He is a member of the Brooklyn Law School class of 2015. While attending law school he focused his studies on intellectual property and was a member of the Brooklyn Law Incubator & Policy (BLIP) Clinic. He is admitted to New York and New Jersey state bars. In the Fall of 2016 he will be pursuing an LL.M. in taxation from NYU Law.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advise. Instead, readers should seek an attorney.