General policy statement
This Bill amends the Copyright Act 1994 by inserting a new Part 9A to establish a mandatory resale right for artists when their artistic works are resold in New Zealand. This resale right applies to artists who are residents or citizens of New Zealand, or who are nationals of reciprocating countries that offer a similar right to nationals of New Zealand.
A resale right entitles an artist to receive a resale royalty payment each time an original artistic work is resold on the secondary art market. It will apply only where ownership in a work is transferred by sale after the first transfer of ownership of that work by the artist. It will not apply to the first sale or transfer of an artistic work, and it will not apply to sales between private individuals.
A resale right will apply to an artistic work in which copyright exists, including limited editions made by the artist or made under the artist’s authority, but excluding works of architecture (being a building or a model of a building). The right is inalienable and cannot be waived, assigned, or charged. The artist who created the artistic work will hold the right regardless of whether the artist owns the copyright in the work. The right can be transmitted only on the death of the holder of the resale right.
Upon the death of the artist, the right passes in accordance with the artist’s will to the person entitled under the will; or, if there is no will, by operation of law.
The resale royalty rate will be an additional percentage of the resale price (excluding tax charged under section 8 or 11 of the Goods and Services Tax Act 1985). The resale right will apply only to sales that are above a specified minimum threshold in value. This threshold, and the percentage of the resale royalty rate, will be set by regulation. Royalties will be payable to living artists or to those entitled under a deceased artist’s will (or their successors), but only for as long as the resale right continues (which is of the same duration as copyright in a work, 50 years after the death of the artist).
The obligation to pay a resale royalty accrues at the time when an artistic work is sold on the secondary art market through any auction house, gallery, dealer, or other intermediary or professional involved in the business of dealing in works of art. The seller, together with the art-market intermediary or professional involved in the sale will be jointly and severally liable for payment of a resale royalty (or, if there are no agents, the seller and the buyer, as long as they are acting in the course of the business of dealing in artistic works). Liability to pay a resale royalty will arise on the completion of that sale.
The resale right, including the collection of resale royalties, will be managed through a compulsory collection system by the sole collecting agency on behalf of artists, whether or not they are members of that agency. Only this agency is entitled to request information on any resale in order to secure payment of royalties, and it must treat this information as confidential.
In return for managing the resale right, the collecting agency will be entitled to charge a fixed fee or percentage of the royalty, as determined under regulatory powers. Regulations will also provide for the appointment of the collecting agency and the rules governing its operation. These rules will include—
the manner in which the collecting agency must collect, hold, and distribute resale royalties:
the way in which the agency’s management fee is to be calculated:
representation of the resale right holders in the management of the agency:
the disclosure of the financial affairs of the agency:
access to (and disclosure of) records held by the agency:
how the agency must gather, hold, and disclose that information; and
any other matter relating to the conduct or operation of the agency.
Non-payment of resale royalties and failure to provide information as required under the Act will be subject to civil proceedings. Civil proceedings may be pursued only by the collecting agency, on behalf of a resale right holder.
Clause by clause analysis
Clause 1 is the Title clause.
Clause 2, the commencement clause, provides that the Bill will come into force on the date appointed by the Governor-General by Order in Council.
Clause 3 states that the Bill amends the Copyright Act 1994 (the principal Act).
New Part 9A inserted into principal Act
Clause 4 inserts a new Part 9A, comprising new sections 204A to 204R, into the principal Act.
New section 204A sets out certain definitions that apply to this Part, including a definition of artistic work that differs from the definition applying elsewhere in the principal Act. Other key definitions relate to the following terms: artist, first transfer of ownership by artist, holder, reciprocating country, resale, resale right, and resale royalty.
New section 204B provides for the application, by Order in Council, of any provisions of this Part to reciprocating countries.
Artists’ resale right
New section 204C provides that a resale right gives an artist the right to be paid a resale royalty on every resale of an artistic work of that artist. It also sets out the scope of the application of the resale right.
New section 204D elaborates on the meaning of resale.
New section 204E provides, in place of section 126, for the presumptions relevant as to the creation of an artistic work.
Eligibility to hold resale right
New section 204F defines who is eligible to hold a resale right in terms of residency and nationality. It also covers the question of eligibility to hold the right in the case of a deceased artist.
Artistic works created by joint artists
New section 204G provides for the circumstances when an artistic work is created as a result of the collaboration of 2 or more artists.
Duration of resale right
New section 204H provides that a resale right extends to 50 years after the death of the artist, the same period as applies for copyright. This section also clarifies the duration of the resale right in the case of works by joint artists.
New section 204I provides that a resale right must not be assigned, waived, or made subject to a charge and that any such arrangement is void. That prohibition does not limit the ability to transmit the right by will and does not affect the requirement on the collecting agency to act on behalf of artists in the collection of resale royalty payments.
New section 204J sets out how a resale right may be transmitted on the death of the holder of the right.
Resale royalty payments
New section 204K provides how resale royalty payments are to be calculated.
New section 204L sets out who is liable for payment of a resale royalty, namely the seller and the agent acting for the seller on the resale, or if there is no seller’s agent, the agent acting for the buyer on the resale, or if there is no buyer’s agent, the buyer, provided, in each case, that they are acting in the course of the business of dealing in artistic works. Payment is due on the completion of the resale.
Management of collection of resale royalties
New section 204M provides that all resale royalties must be collected and distributed by the collecting agent on behalf of the person who holds the resale right. The collecting agent is able to charge a management fee, as provided for by regulations.
New section 204N makes provision for the collecting agency to be able to request and have access to the specified information that is necessary for it to be able to manage the resale right. Information obtained under this section must be treated as confidential.
New section 204O sets out the obligation on those from whom information is requested to supply that information.
Infringements and remedies
New sections 204P and 204Q provide for the collecting agent to enforce in the court its requests for information and the payment of resale royalties and for the relief that may be granted.
Regulation-making powers in relation to resale right
New section 204R empowers the making of regulations for the purposes specified.
Other amendments to principal Act
Clause 5 disapplies the definition in section 2(1) of artistic work for the purposes of Part 9A.
Clauses 6 and 7 provide, respectively, that sections 230 and 232 do not apply to Part 9A.
Regulatory impact statement
A resale right for artists gives recognition of an intellectual property right. It acknowledges the unique nature of artistic work, where the value is primarily in the one-off original artistic work and not in reproductions or repeated use. It is an economic right and provides an added incentive to create and the ability to derive ongoing benefit from this creation. A resale right is also a moral right recognising the continuing relationship between the creator and his or her artistic work.
Artists currently derive limited advantage from copyright legislation as it deals with reproductions or repeated use of a work. The introduction of a resale right for artists through an amendment to the Copyright Act 1994 recognises the intellectual, moral, and economic rights artists have in their artistic works, irrespective of who owns the copyright to those works.
The Ministry for Culture and Heritage has reviewed this regulatory impact statement (RIS) and considers the RIS is adequate according to the adequacy criteria.
Status quo and problem
Copyright law recognises the rights of those who create other works, such as authors, composers, and musicians, to benefit from reproductions and the repeated use of their works. The introduction of a resale right for artists would enable them to access ongoing benefits as creators.
Copyright legislation deals with reproductions or repeated use of works. As artists are involved for the most part in the creation of one-off artistic work, they derive limited benefit from current copyright legislation.
The value of an artistic work is derived primarily from the original piece rather than from reproductions or repeated use of its image. While there may be some royalties from the reproduction of images in auction catalogues and other publications, artists do not necessarily retain copyright or gain substantial economic benefit once their artistic work is sold.
Artistic works by young and emerging artists are usually first sold for a relatively low sale price. As an artistic work is resold over time, it often increases in value, usually in parallel to an artist’s growing body of artistic work and reputation. At the time of the original transaction, artists may be in a vulnerable position, in that their need for money may be high yet their ability to extract a good price may be low. This original transaction is the only real opportunity an artist has to benefit from the artistic work. A resale right is a means of addressing this limited access to economic benefit from the creation of an artistic work.
The introduction of a mandatory resale right would—
provide an economic incentive to artists to continue to produce artistic work and to derive ongoing benefit from that production:
recognise that artists have limited opportunities to benefit from the repeated use or reproduction of their artistic work:
make the artists’ right to benefit from the resale of their artistic work inalienable, thereby providing equal protection for both established and emerging artists rather than limiting their ability to benefit from royalty returns on the basis of their relative bargaining positions:
ensure that artists and their families can benefit from resale of the artists’ work.
Option A: Status quo remains
This would mean that artists would continue to derive limited advantage from copyright legislation as it deals with reproductions or repeated use of a work, whereas they are involved for the most part in the creation of one-off original pieces of artistic work. The status quo would not address these relative inequities between visual artists and other artists, in terms of the returns they are able to gain from their work. The cost under this option is to artists in terms of the lost economic benefits they potentially could have gained from their artistic work.
Option B: Additional funding to support artists in ways to be decided
This option would require new funding to be allocated by government, either directly or to an agency such as Creative New Zealand. Funding allocated in a general or contestable manner does not address the relative inequities between visual artists and other artists under current copyright legislation. General or contestable funding may benefit a range of visual artists and for a variety of reasons, whereas a resale right would directly benefit the artist whose artistic work was in demand and being resold, thus enabling that artist to enjoy the economic benefit from his or her artistic work.
Option C: Voluntary resale contracts
Some artists, in New Zealand and overseas, have devised their own resale right contracts. The ability of artists to insist upon such an arrangement, however, depends on their current reputation. It disproportionately favours established artists whose artistic work is in demand. Even then they may not benefit greatly from such voluntary contracts. This is because artists can usually only attach the arrangement to artistic works which they are selling for the first time. They are unable to attach the arrangement retrospectively to artistic work that was made and sold when they were less known, even though its resale value may have subsequently increased. The legality of such contracts may also be problematic, particularly in terms of enforcing any resale right conditions beyond the initial contract between an artist and the first buyer. It would also be difficult to enforce for the full period of copyright, which is 50 years after the death of the artist. The cost to artists under this option is the lost economic benefits that they potentially could have gained from their artistic work.
Option D: Tax incentives or reduced taxes
Respondents to a public discussion paper on the possible establishment of a resale right suggested tax incentives or reduced taxes, either instead of or in addition to a resale right scheme. These suggestions included—
tax incentives for art collectors as a means of encouraging them to buy art and support artists, particularly emerging artists:
tax incentives to encourage art collectors to sell or donate artistic work to museums and public art institutions:
the removal of Goods and Services Tax on materials used by artists in the creation of their artistic work:
the removal of income tax for artists.
Specific costings have not been considered for any of these options. Options A and C would cost artists in terms of the lost economic benefits they potentially could have gained from their artistic work. Options B and D would involve additional costs to government, either from tax revenue foregone or from the allocation of additional funding to support artists.
A resale right, on the other hand, would be self-sustaining, would result directly in additional income for the artist whose artistic work was in demand and being resold, and would not incur ongoing costs to government.
A resale right is the preferred option for supporting visual artists, as it is based on the artist’s own production and creation of artistic work and their ensuing reputation.
Legislating for a mandatory resale right is not intended to result in large payments for every artist. As is the nature of any right under the Copyright Act 1994, a resale right will reward those creators whose artistic works are in most demand.
A resale right is, in effect, a variation of rights that currently exist under the Copyright Act 1994, a variation that recognises the unique nature of artistic work. The relationship between copyright and a resale right is reinforced by reference to a resale right in the oldest international copyright protection treaty, the Berne Convention for the Protection of Literary and Artistic Works.
A resale right is both an economic right, in that it provides an added incentive to create and the ability to derive ongoing benefit from this creation, and a moral right, in that it recognises a continued relationship between a creator and the work.
A resale right would apply to a graphic work, photograph, sculpture, collage, or model or a work of artistic craftsmanship not falling into the previous categories, and to any painting, drawing, diagram, map, chart, or plan, and to any engraving, etching, lithograph, woodcut, print, or similar work. It would also apply to other artistic work such as unique pieces of jewellery or furniture that have been created by a named artist. In line with the Copyright Act 1994, the right would last for the life of the artist plus 50 years. It would also be inalienable and not reassignable. The right would apply to the creator irrespective of who owned the copyright in an artistic work.
The right would apply to resales through dealers, auction houses, or other art-market intermediaries or professionals. It would apply only to sales of $500 or more. There would be no cap on the value of royalties that could be earned on each artistic work that was resold. The art market intermediary and the seller would be jointly liable for payment. The royalty would be paid at a flat rate of 5% on the hammer price or sale price. A flat rate, plus the $500 threshold, adds simplicity, reduces compliance costs, and ensures that costs associated with the resale right do not outweigh the benefits.
The collecting agency would cover administration costs by charging a commission on the resale royalties it collected. This is consistent with international practice and with other copyright agencies that administer copyright collection for other artists such as writers and musicians.
The risks identified as being associated with the introduction of the resale right are as follows:
One argument against the introduction of the resale right is a possible increase in compliance costs to art-market intermediaries such as dealer galleries and auction houses. Compliance costs would be kept to a minimum by introducing a flat 5% royalty rather than the staggered royalty rate introduced in Britain. The monitoring and enforcement would be undertaken by the collecting agency, including the calculation of the royalties due and the eligibility of artists. Additional compliance by art-market intermediaries would be minimal. For example, auction houses already publicly report sales in detail on websites and in catalogues. Thus, the introduction of a resale right should not prove onerous. As all art-market intermediaries would have to complete sales and financial returns for the Inland Revenue Department, the provision of information to a collecting agency should be straightforward.
Depressing the art market
This argument has been raised in Britain and Australia by those who oppose its introduction, but there is no conclusive evidence to establish that this effect actually occurs. There is already a range of costs inherent in the art market, such as a buyer’s premium and the commission an agent charges a seller, often both on the same artistic work. A resale right would provide the artist with a 5% share of the resale price, less the commission charged by the collecting agency. This is a relatively small amount compared to the 30%-plus typically taken by an art-market intermediary. There is similarly no conclusive evidence to show that these factors impact negatively on the price people are prepared to pay for an artistic work, or that they reduce demand for art generally. In Britain, for example, the art market has strengthened considerably since resale right regulations were introduced in February 2006. Of the 3 600 items of artistic work sold at auction in 2006 by New Zealand artists, the vast majority (99%) sold for less than $100,000. A 5% resale royalty rate is unlikely, therefore, to have much more than a minimal, if any, impact on the resale value of artistic work sold in this country.
Art market moving offshore
Those opposed to the resale right have argued that the sale of artistic work will be relocated to countries that do not have a resale right, to avoid paying the resale royalty. It was asserted that this would be an issue in Britain where it was feared the sale of artistic work would divert to Switzerland or New York. There is no evidence that that has occurred. In New Zealand the closest alternative market would be Australia, but there is little risk of diversion as the market for New Zealand art is primarily locally based. Nearly 90% of artistic work sold at auctions in Australasia over the past decade by New Zealand artists was sold in this country. The costs involved in relocating art to a new market would act as a further disincentive.
Monitoring and evaluation
Operational monitoring and enforcement of a resale scheme would be undertaken by 1 private sector collecting agency which would pursue the payment of royalties on behalf of individual artists.
The discussion paper
“A Resale Royalty Right for Visual Artists: Options for its possible application to New Zealand” was released in April 2007. Over 3 000 hard copies were distributed and it was placed on the Ministry for Culture and Heritage’s website. Submissions were sought from all interested parties, including artists, art collectors, art dealers, galleries and auctioneers, iwi, secondhand dealers, museums, art institutions, and any other person or group with an interest in the buying or selling of artistic work. Respondents had until 22 June 2007 to make a submission.
Two hundred and two submissions were received. Of these, 126 respondents (62%) favoured the establishment of a mandatory resale right in New Zealand, 6 (3%) were neutral or uncertain, and 70 (35%) were opposed.
Artists and art groups made 56% of these submissions, followed by art collectors 11%, secondhand dealers 8.5%, and dealer galleries 8%. The remainder of the submissions were from copyright collection agencies, museums or art institutions, auction houses, academics, and others.
The following agencies were also consulted and account taken of their views: Ministry of Economic Development, The Treasury, Ministry of Foreign Affairs and Trade, Te Puni Kōkiri, Ministry of Pacific Island Affairs, Ministry of Consumer Affairs, Ministry of Justice, Inland Revenue Department, and the Office of the Privacy Commissioner. Creative New Zealand and Te Papa were consulted on the discussion paper.