Close v. Sotheby's, Inc.
894 F.3d 1061 (2018)
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Rule of Law:
The federal Copyright Act of 1976 expressly preempts state laws that create rights equivalent to the exclusive rights within the general scope of copyright, such as a right to resale royalties. However, claims arising before the 1976 Act's effective date are governed by the 1909 Act, which does not preempt such state laws.
Facts:
- California enacted the California Resale Royalties Act (CRRA), which became effective on January 1, 1977.
- The CRRA grants artists an unwaivable right to receive 5% of the sale price upon any resale of their 'fine art' under specified conditions.
- The federal Copyright Act of 1976, which contains an express preemption clause, became effective on January 1, 1978, superseding the 1909 Copyright Act which lacked such a clause.
- Artists Chuck Close, Laddie John Dill, and the Sam Francis Foundation created works of fine art.
- Auction houses and online marketplaces, including Sotheby’s, Inc., Christie’s, Inc., and eBay Inc., facilitated the resale of these artists' works.
- These companies resold the artists' works but did not pay the 5% resale royalty to the artists or their successors as required by the CRRA.
Procedural Posture:
- Plaintiffs (Chuck Close, et al.) filed putative class-action complaints against Sotheby's, Christie's, and eBay in the U.S. District Court for the Central District of California (trial court).
- The district court dismissed the complaints, holding the CRRA's regulation of out-of-state sales violated the dormant Commerce Clause.
- Plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit (intermediate appellate court).
- The Ninth Circuit, sitting en banc, reversed in part, holding the unconstitutional portion of the statute was severable, and remanded the case.
- On remand, the district court again granted defendants' motions to dismiss, this time holding that the CRRA was preempted by federal copyright law.
- Plaintiffs appealed the second dismissal to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does federal copyright law preempt the California Resale Royalties Act (CRRA), which grants artists a 5% royalty on resales of their fine art?
Opinions:
Majority - Judge Bybee
Yes, in part, and no, in part. For claims arising on or after January 1, 1978, the 1976 Copyright Act expressly preempts the California Resale Royalties Act (CRRA), but for claims arising in 1977, the 1909 Copyright Act does not. The court bifurcated its preemption analysis based on the controlling federal copyright statute. For sales occurring on or after January 1, 1978, the 1976 Act governs. Under the two-part test for express preemption in § 301(a), the court found both prongs satisfied: (1) the subject matter of the CRRA (fine art) falls within the subject matter of copyright, and (2) the right created by the CRRA is 'equivalent' to the exclusive right of distribution granted by § 106 of the Copyright Act. The CRRA fundamentally alters the federal distribution right, as limited by the first-sale doctrine, by creating an inalienable right to payment on subsequent sales, which is precisely the type of state-created right federal law is intended to preempt. For the period between January 1, 1977, and January 1, 1978, the 1909 Act applies. This Act contains no express preemption clause, so the analysis turns on conflict preemption. The court found itself bound by its precedent in Morseburg v. Balyon, which held that the CRRA did not conflict with the 1909 Act. The court determined that subsequent Supreme Court decisions had not 'clearly irreconcilably' overruled Morseburg, and therefore its holding remains controlling for that limited time period.
Analysis:
This decision effectively neuters the California Resale Royalties Act (CRRA), the only 'droit de suite' law in the United States, for all art resales occurring after 1977. By confirming the broad preemptive power of the 1976 Copyright Act's § 301(a), the court establishes that states cannot create economic rights for artists that are 'equivalent' to the exclusive rights governed by federal copyright law, even if those state rights are structured differently. The ruling creates a stark temporal dividing line, leaving open only a narrow, one-year window of potential liability for resales that occurred in 1977, reinforcing the federal government's supremacy in the field of copyright.
