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Thursday, 26 February 2015

BREAKING NEWS: CJEU says that Member States are free to determine who must pay droit de suite royalty

Copyright has increasingly become linked to de-materialisation of both works and their exploitation channels, so it is kind of re-assuring to find cases that are still about the analogue world. 

This morning the Court of Justice of the European Union (CJEU) issued in fact its decision [not yet available on the Curia website] in Case C-41/14 Christie's France, a reference for a preliminary ruling from France seeking clarification as regards that peculiar creature of EU copyright known as artist's resale right, or droit de suite [Merpel explains that this phrase does not mean right to a (hotel) suite, but rather the "right to follow" the sale of one's own artwork] within Directive 2001/84/EC (the Resale Right Directive)

As this very blog reported a few months ago, despite its appearance as a case concerned with a specialist (and possibly pretty niche) area of copyright, Christie's France is yet another CJEU decision dealing with the relationship between IP rights and contract law [to this end readers will promptly recall the very recent judgment in Ryanair, here].


Article 1 of the Resale Right Directive sets an obligation for Member States to provide for the benefit of the author of an original work of art an inalienable, unwaivable resale right. This consists of the right to receive a royalty based on the sale price obtained for any resale of the work, subsequent to the first transfer of the work by the author. 

It's not droit to a suite ...
Article 1(4) further states that:

"The royalty shall be payable by the seller. Member States may provide that one of the natural or legal persons referred to in paragraph 2 [sellers, buyers or intermediaries art market professionals, such as salesrooms, art galleries and, in general, any dealers in works of art] other than [that's the important bit] the seller shall alone be liable or shall share liability with the seller for payment of the royalty."

Christie's France decided to change its terms and conditions so that the buyer, and not the seller, became liable to pay the royalty. The issue thus became: can a contract derogate from the seller’s obligation to pay the royalty as is enshrined in the Directive? 

The Syndicat National des Antiquaires (SNA) did not think so: it actually took the view that, in placing the onus of the resale royalty on the buyer, Christie’s France’s general conditions amounted to unfair competition. 

Thus litigation ensued, and the Court of Cassation decided to stay the proceedings and seek guidance from the CJEU.

The following is the question that the French court referred to the CJEU:

"Must the rule laid down by Article 1(4) of Directive 2001/84/EC ... on the resale right for the benefit of the author of an original work of art, which makes the seller responsible for payment of the royalty, be interpreted as meaning that the seller is required definitively to bear the cost thereof without any derogation by agreement's being possible?"

The CJEU decision

As stated in the relevant press release, this morning the CJEU held that "[t]he cost of the royalty that has to be paid to the author on any resale of a work of art by an art market professional may be borne, definitively, by the seller or the buyer".

.... but rather the droit
to follow resale of artworks
According to the Court,

"[T]he Member States alone may determine the person liable for the royalty. Although Directive 2001/84 provides that the person by whom the royalty is payable is, in principle, the seller, it none the less allows for a derogation from that rule and thus leaves the Member States at liberty to specify another person from among the professional persons referred to in the Directive who, alone or with the seller, will assume liability for the payment of the royalty. The person who has been designated in that way by national law as the person by whom the royalty is payable may agree with any other person, including the buyer, that that other person will definitively bear, in whole or in part, the cost of the royalty, provided that acontractual arrangement of that kind does not affect the obligations and liability which the person by whom the royalty is payable has towards the author ... [S]uch a derogation is in keeping with the Directive’s objective of bringing to an end distortions of competition in the art market, since the harmonisation concerned is limited to those domestic provisions which have the most direct impact on the functioning of the internal market. For the purpose of achieving that objective, thus circumscribed, it is necessary to make provision as to the person liable for payment of the royalty and as to the rules for establishing the amount of the royalty. However, such provision is not necessary with regard to the question as to who, definitively, will bear the cost of the royalty.
The Court does not exclude the possibility that such a derogation may to some extent have a distorting effect on the functioning of the internal market. However, such an effect is only indirect since it arises as a result of contractual arrangements that are independent of the payment of the royalty to the author, for which the person by whom the royalty is payable remains liable."

A more detailed analysis will follow as soon as the judgment becomes available, so: stay tuned!


Anonymous said...

Does any of our US friends know if this feature is active in US law? It would appear that such a restraint on trade would violate other US laws and be de facto unenforceable.

anthony o'dwyer said...

Just two points on this: firstly it seems counter intuitive and contrary to the doctrine of harmonious interpretation (albeit a wide interpretation) to allow contracting parties to usurp a Member State's choice of means, as a provided for under the Directive, in how the resale right shall be administered. If the national implementation measure had allowed for this choice of who must pay then individual contracting parties would be free to choose who pays but as French legislators (see L.122-8 FIPC) had decided to specify the seller as the party liable rather than providing for a choice of who must pay, the CJEU is not acknowledging state autonomy in such matters and arguably rolls back on the principle of subsidiarity (i.e. that decisions be taken on a local level where possible)? Secondly, where such contracts involve consumers, rather than art market intermediaries, do such agreements amount to an unfair term in a consumer contract?

Anonymous said...

The Resale Right is not implemented in the US, China and other countries as of yet but there are initiatives under way in this regard

Anonymous said...

Thank you Anonymous @ 12:50.

To say the least, the attempt to implement in the US will be exceptionally interesting (in light of recent court cases there re: copyright exhaustion that exhibit a lack of propriety for such downstream control).

My prediction is that such will not - and in truth, cannot - take hold in the US.

Freddie Noble said...

Anthony, in response to your first point, I think the CJEU covers that off with:

"...provided that a contractual arrangement of that kind does not affect the obligations and liability which the person by whom the royalty is payable has towards the author..."

The way I read this, the seller is liable to pay the author under French law. A contract cannot change that, but nevertheless the seller is free to agree with the buyer that the buyer should bear the cost.

If the buyer refuses to pay, then the author could sue the seller. The seller could in turn sue the buyer for breach of the contract in which the buyer agreed to pay, but the seller must pay the author irrespective of his success or not in chasing down payment from the buyer.

Perhaps the author could also sue the buyer directly, depending on the law as to third party rights in contracts and on the specific terms in the contract. (I have no idea whether France has any equivalent of the Contracts (Rights of Third Parties) Act in the UK.)

anthony o'dwyer said...

Freddie, thank you for your reply. Do you know of any other cases from the CJEU that allow for such contractual derogations?

Freddie Noble said...


No I don't, but I am probably the wrong person to ask...

I would personally not describe the contractual term at issue as a "derogation". I think this is misleading and confusing. Of course, that (or presumably the equivalent in French) is the term the CJEU and the French Court have chosen to use and it doesn't much matter to them what I think of it, but nevertheless:

Article 1 says that there is a resale right and says that [by default] it is payable by the seller. It then gives member states a [limited] option to change that. If a member state takes up that option [it seems that France did not?] then that might be called a "derogation".

Whether the member state takes up the "derogation" option or not, the buyer and seller are in a position where the law of their jurisdiction states that one or both of them are liable to pay a royalty. In France, it appears that French law states that the seller is liable to pay.

Nonetheless, the buyer and seller agree that the buyer will bear the cost. This does not change the fact that the seller is liable to pay, and therefore there is no contractual "derogation" from the law in my view.

I think the following situation is analogous...

I have a council tax bill to pay. By law, I am liable to pay this tax. In fact, I believe there is criminal liability if I do not pay.

You and I agree that I will paint a picture of your cat, and in return you will pay my council tax bill. You are agreeing to bear the cost of my council tax, but I am still liable for it to the authorities.

I paint the picture, but you do not pay my tax bill. On the face of it there is a breach of contract and I could sue you to get paid (nobody else will want to buy a picture of your cat so I have lost out even if you send the picture back). Nonetheless the Council tax man will not be very impressed if I try to tell him that I am no longer liable to pay my tax bill. Irrespective of whether or not I can make you pay me, I still have to pay the Council and they will put me in jail if I don't.

Certainly, the French case may have issues of unfair competition, unfair contractual terms, and so on... but none of these were apparently part of the question to the CJEU. Perhaps I am missing something, but to me it seems that the contract is no real "derogation", just an agreement that the buyer will pay a premium to cover a specific cost incurred by the seller.

anthony o'dwyer said...

Thanks Freddie, you've explained the contractual issue very clearly. It will be interesting to see whether the French Court use this preliminary ruling to decide the case or employ other grounds to exclude these terms. In addition, I will be curious to see whether the Commission gives an opinion on this practice and the resulting 'cascade effect' in its pending report on the resale right directive.

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