The French Ministry of Culture is currently embarking on research into ‘the permanence of artistic royalties through smart contracts and other means, and on how blockchains communicate with each other’. Launched in January 2023, this initiative focuses on smart contracts for artwork sales requiring first and subsequent buyers to agree to pay artists a percentage of any resale purchase price. A growing number of artists and their NFT sales platforms have employed such smart contractual resale conditions in recent times, especially in the US.
It is fitting that the lead is being taken by France, where the idea of permanent artists’ resale royalty rights was conceived just over a century ago and was implemented not by contract law but by ‘other means’: artists’ rights legislation. Enacted in 1920 as droit de suite, French citizen-artists were given permanent legal rights to receive payments of royalties each time their works were resold in France. Versions of this ‘right to follow’ law have been developed and enacted over the past century or so by over 80 nations to benefit their artist-citizens, including by the UK, where droit de suite translates as the artist’s resale right (ARR). In the US, ARR legislative proposals have been repeatedly rejected; whether such denials have contributed to the recent proliferation of smart contractual resale conditions – in what is the contemporary art world’s consistently largest marketplace – will doubtless be explored.
However, before considering the US’s current non-legislative ARR position, the French Ministry could benefit from first considering why so many other nations have enacted ARR. For example: most artists first enter the marketplace in a weak bargaining position; it is hard to find interested buyers; harder to persuade willing buyers alsoto accept a contractualcondition of sale requiring them to pay artists a share of proceeds of a subsequent resale; and even harder for artists to muster the courage and resources to enforce compliance with contractual resale conditions by defaulting resellers. Moreover, even if first buyers agree to resale conditions, contract laws in many nations do not give artists (or their estates after death) the right to enforce resale compliance by second and subsequent buyers – a legal difficulty often exacerbated by the location in foreign nations of first and subsequent resellers.
Many such contractual shortcomings can be overcome by national ARR legislative provisions, which typically include the following:artists are automatically given ARR as an economic intellectual property right; ARR is inalienable, meaning artists cannot sell or donate or waive its enforceability, so that resellers cannot legally persuade or pressurise artists to relinquish it; ARR endures for an artist’s life plus decades after death (enforceable by artists’ estates); royalty rates are standardised (around 4–5% of the resale price) up to a maximum rate cap; private resales are excluded, so only art-market professionals involved in resales are required to pay royalties (which may be included within overall resale purchase prices); art-market professionals pay royalties into non-profit national collecting organisations, which remit them to their artist-members; art-market professionals may be judicially sanctioned for non-compliance (see Artlaw AM456); ARR nations may sign treaties with other nations operating similar ARR legislative frameworks resulting in treaty nations agreeing to collect royalties for resales in their territories of works by citizen-artists of other treaty nations, and national collecting organisations remitting receipts of foreign artists’ royalties to each other accordingly.
Furthermore, national ARR legislation overcomes a widely recognised imbalance between the economies of visual artists compared with the economies of other creative authors. Visual artists, for example, do not typically derive principal income from selling copies of their works, but from one sale of unique or limited-edition works to single first buyers, prices for which are invariably lower than first and subsequent resellers are likely to achieve, and artists have no inherent legal rights to control resales of their unique/limited-edition works. Inversely, most other creative authors (of original music, literature, choreography, moving images and so on) typically derive principal income from controlling production and dissemination of multiple copies of works to a hoped-for mass market – an economic model that relies on their exercising such control by virtue of national and international copyright law. Accordingly, advocates for permanent artists’ resale royalty rights contend that such innate economic imbalance is best redressed by national ARR legislation.
National ARR legislation has not yet achieved the ubiquity of national copyright legislation, which is now enacted by most nations worldwide, but this was not always so. Copyright’s now broad geographical spread was narrow for centuries. The world’s first copyright statute was enacted in 1709 by the British Parliament: the so-called Statute of Anne was entitled An Act for the Encouragement of Learning, by vesting the Copies of Printed Books in the Authors or purchasers of such Copies, during the Times therein mentioned. Named after Queen Anne of Great Britain, it gave publishers of new books copyright protection for 14 years, after which period copyright reverted to the book’s author for a further 14 years. This was therefore the world’s first statute to recognise a legal right of authorship, but only for writers. Authors of engravings, sculptures, paintings, drawings, and photographs were all eventually included by 1862.
Towards the end of the 19th century, most industrialising nations in the northern hemisphere had enacted similar copyright laws for their author-citizens. In 1886 those nations met at Berne in Switzerland to address common copyright objectives: to harmonise their many differing national copyright frameworks, and to include mechanisms for mutual recognition and reciprocal enforcement of other nations’ author’s rights. These common objectives were agreed by nations signing the first international intellectual property law treaty: the Berne Convention for the Protection of Literary and Artistic Works (Berne).
Over the past 140 years or so Berne has been revised many times, and its provisions have now been adopted and nationally enacted by all but a handful of nations worldwide. However, it was not until 1971 that ARR was introduced into Berne’s provisions: not as a mandatory requirement of signatory nations, but as a recommended optional extra that nations could choose to adopt. The US did not join Berne until 1989, mainly because that was the year Tim Berners-Lee invented the world wide web and the US’s creative authors and industries would soon need Berne’s global protection against potential digital copyright abuses. On joining Berne, however, the US chose not to adopt the optional extra ARR provision.
ARR in the US has been explored by federal and state legislators many times since the 1970s and, bar one notable exception, has always been strongly resisted. Legislation was first proposed to Congress in 1978, then in 1986, 1987, 2011, 2014, 2015, 2018 and 2019: every proposal failed. Ten US state legislatures have also considered ARR proposals, but only California legislated: the California Resale Royalties Act 1976 (CRRA). In 2018, however, a federal appeals court nullified the CRRA, on the basis that its provisions were incompatible with federal law. In particular, the court cited the US’s longstanding federal ‘first-sale’ legal doctrine, which permits the owner of an artwork to resell it as they see fit – without hindrance from the original artist-owner. This federal judicial precedent effectively confirmed that individual states cannot enact their own ARR framework.
Following this 2018 federal court ruling, US-based artists and their lawyers searched for ways of achieving ARR by non-legislative means, eventually focusing on using blockchain technology to create NFT smart contracts when first selling their works. Such first sale practices have flourished in the US over the past year or so. The French Ministry should consider recent reliable reports of increasing numbers of US-based artists, and their blockchain market platforms, currently rowing back from employing contractual resale royalty requirements – and their reasons for doing so.
Towards the end of 2022, the NFT platform X2Y2 Marketplace replaced its smart contractual resale royalty requirement with an option to pay, and if so at a royalty rate of a buyer’s own choosing; since then, most buyers are reported to have opted out of doing so. The Magic Eden and LooksRare NFT Marketplaces also made artist’s resale royalties optional – explaining that a collector’s ‘need for low-fee NFT trades stands in contrast to the creator’s need to receive royalty payments’. LooksRare introduced a new policy of paying 25% of its overall platform fees to support ‘creators in the new landscape’.
Optional contractual artists’ resale royalties are evidently becoming a growing trend in NFT art marketplaces. The French Ministry could track such emerging practices, and consider whether they correlate to the marked reduction in NFT art trading volume reported in the first months of 2023. The Ministry might further consider whether such optional practices are being driven by, on the one hand overriding needs of artists to achieve first sales from buyers only willing to commit without resale obligations and, on the other, by the needs of artists’ NFT market platforms to ensure reliable supplies of both artists’ works and first buyers.
There is a further key issue the French Ministry is likely to encounter: smart contracts may not be universally recognised as being contracts at all, and therefore not be legally binding on buyers and enforceable by artists. This is a controversial issue, which reflects the inevitable difficulty of legislators, courts and lawyers to keep pace with society’s development of new contractual practices – especially in this era of rapid digital technological innovation. Some nations, and a handful of states in the US, have enacted legislation to recognise smart contracts and regulate their legal enforceability, but most nations and states worldwide have yet to do so. Given that smart contracts exist by virtue of blockchain technology and the internet, their successful operation ideally requires universal legal recognition – sooner rather than later.
Consequently, the French Ministry of Culture’s aims might best be achieved by universal ARR legislation, rather than by employing legally uncertain smart contracts. For example, the optional ARR provision of Berne, to which many nations (save the US) now subscribe, could be revised to make it a mandatory national requirement.
Alternatively, the idea of creating a new multilateral ARR treaty has been actively pursued in recent years by the United Nations’ World Intellectual Property Organisation, and this has gained significant support from the more than 80 current ARR legislative nations as well as others considering the idea. If such a universal ARR instrument achieved the agreement of most nations, it is likely that the US would subscribe to it – just as it did by joining Berne in 1989 – to secure worldwide benefits for its citizen-authors.
Advocates for NFTs cite them as a unique and secure mode of ownership, and currently they do represent the only way US-based artists may achieve ARR. However, given that the USA’s first-sale doctrine enshrines an owner’s absolute right to resell without royalty, it is understandable that US-based NFT platforms have fundamentally reconsidered ARR. Criminal motives for NFT and cryptocurrency uses are widely discussed, but the abilities of NFTs to represent trustworthy ownership are more legitimate motives for enshrining artists’ rights in the digital space. While such a digital Utopia may be a noble ambition, there are unavoidable factors in global fiscal and art world economies that bring real world issues to bear.