CHUCK CLOSE; LADDIE JOHN DILL, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. SOTHEBY‘S, INC., a New York corporation, Defendant-Appellee. THE SAM FRANCIS FOUNDATION; CHUCK CLOSE, individually and on behalf of all others similarly situated; LADDIE JOHN DILL, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. CHRISTIE‘S, INC., a New York corporation, Defendant-Appellee. THE SAM FRANCIS FOUNDATION; CHUCK CLOSE, individually and on behalf of all others similarly situated; LADDIE JOHN DILL, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. EBAY INC., a Delaware corporation, Defendant-Appellee.
No. 16-56234, No. 16-56235, No. 16-56252
United States Court of Appeals for the Ninth Circuit
July 6, 2018
D.C. No. 2:11-cv-08604-MWF-FFM, D.C. No. 2:11-cv-08605-MWF-FFM, D.C. No. 2:11-cv-08622-MWF-PLA
FOR PUBLICATION
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Appeal from the United States District Court for the Central District of California Michael W. Fitzgerald, District Judge, Presiding
Argued and Submitted April 10, 2018 Pasadena, California
Filed July 6, 2018
Before: Danny J. Boggs,* Jay S. Bybee, and Paul J. Watford, Circuit Judges.
Opinion by Judge Bybee
SUMMARY**
Copyright
The panel affirmed in part and reversed in part the district court‘s dismissal of
Affirming the dismissal in part, the panel held that plaintiffs’ CRRA claims concerning sales that postdated the 1976 Copyright Act‘s effective date of January 1, 1978, and thus were covered by the 1976 Act, were expressly preempted by
Reversing in part, the panel held that CRRA claims concerning sales that occurred between the CRRA‘s effective date of January 1, 1977, and the 1976 Act‘s effective date of January 1, 1978, were not expressly preempted, nor were they preempted by conflict preemption. The panel remanded those claims to the district court for further proceedings.
COUNSEL
Michael A. Bowse (argued), Ira Bibbero, and Eric M. George, Browne George Ross LLP, Los Angeles, California, for Plaintiffs-Appellants.
Angela Dunning (argued) and John C. Dwyer, Cooley LLP, Palo Alto, California, for Defendant-Appellee eBay Inc.
Deanne E. Maynard (argued), Morrison & Foerster LLP, Washington, D.C.; Paul T. Friedman, Morrison & Foerster LLP, San Francisco, California; Howard B. Comet and Steven A. Reiss, Weil Gotshal & Manges LLP, New York, New York; for Defendant-Appellee Sotheby‘s Inc.
Adam K. Lloyd, Matthew E. Delgado, Hillary A. Hamilton, and Jason D. Russell, Meagher & Flom LLP, Los Angeles, California, for Defendant-Appellee Christie‘s Inc.
Steven A. Hirsch, Keker Van Nest & Peters LLP, San Francisco California; John J. Davis Jr., McCracken Stemerman, San Francisco, California; for Amici Curiae California Lawyers for the Arts and Peter Alexander.
OPINION
BYBEE, Circuit Judge:
The California Resale Royalties Act (“CRRA“) grants artists an unwaivable right to 5% of the proceeds on any resale of their artwork under specified circumstances. To that end, the CRRA requires the seller of the artwork or the seller‘s agent to withhold 5% of the resale price and pay it to the artist or, if the artist cannot be found, to the California Arts Council. If the seller or the seller‘s agent fails to pay the 5% resale royalty, the artist may bring an action for damages.
Plaintiffs are artists and their successors in interest seeking resale royalties under the CRRA from the statute‘s effective date of January 1, 1977, to the present. The issue in this case is whether plaintiffs’ claims are preempted by federal copyright law. The district court held that they are, as a matter of both express and conflict preemption.
We affirm in part and reverse in part. Plaintiffs’ CRRA claims covered by the 1976 Copyright Act—i.e., those concerning sales postdating the 1976 Act‘s effective date of January 1, 1978—are expressly preempted by
The 1909 Copyright Act, however, has no express preemption provision. As such, plaintiffs’ CRRA claims covered only by the 1909 Act—i.e., those concerning sales that occurred between the CRRA‘s effective date of January 1, 1977, and the 1976 Act‘s effective date of January 1, 1978—cannot be expressly preempted. Nor are they preempted by conflict preemption. See Morseburg v. Balyon, 621 F.2d 972, 977–78 (9th Cir. 1980). Accordingly, we reverse dismissal of those claims and remand them to the district court for further proceedings.
I. LEGAL AND FACTUAL BACKGROUND
A. The Droit de Suite
Many nations recognize the
The droit de suite protects visual artists, who face particular difficulty in capitalizing on their work. Literary and recording artists can generally profit from their efforts by controlling the reproduction of books or music. For visual artists such as painters and sculptors, however, the right to control reproduction is often not their principal source of income. Rather, it is often the sale of their original work that allows them to make a profit. The droit de suite gives these artists an economic interest in subsequent sales of their original work, thereby allowing them to capture some of its appreciation in value after the first sale.
The droit de suite also appears in international copyright law. Since 1948, the Berne Convention has recognized that artists possess an “inalienable right to an interest in any sale of the work subsequent to the first transfer by the author of the work.” Berne Convention for the Protection of Literary and Artistic Works art. 14ter(1), Sept. 9, 1886, as amended Sept. 28, 1979, S. Treaty Doc. No. 99-27 (1986). Nevertheless, the Berne Convention does not obligate its signatories to adopt the droit de suite. Instead, the Berne Convention makes the recognition of such rights optional, but rewards such recognition with reciprocity: countries recognizing the right will protect the right of each others’ artists. See Lee D. Neumann, The Berne Convention and Droit De Suite Legislation in the United States: Domestic and International Consequences of Federal Incorporation of State Law for Treaty Implementation, 16 COLUM.-VLA J.L. & ARTS 157, 159 (1992).
The United States became a signatory to the Berne Convention in 1989, but to date, it has not adopted the droit de suite. As early as the 1970s, Congress considered adopting the droit de suite as part of U.S. copyright law, but those efforts have never proved successful. A droit de suite provision made its way into an early version of the Visual Artists Rights Act of 1990 (“VARA“), but was removed from the bill that Congress ultimately enacted. Compare S. 1619, 100th Cong., 1st Sess. (1987), with VARA, Pub. L. No. 101-650, §§ 601–10, 104 Stat. 5089 (1990). Instead, VARA directed the Copyright Office to conduct a study on the feasibility of implementing such a right in the United States. VARA § 608(b).
In 1992, the Copyright Office issued an extensive report concluding that there was
B. The California Resale Royalties Act of 1976 (“CRRA“)
The CRRA is “the first, and thus far only, American recognition of the droit de suite.” NIMMER § 8C.04[B]. Under the CRRA, the seller of “a work of fine art”3 or the seller‘s agent must withhold 5% of the sale price and pay it to the artist.
As originally enacted, the CRRA applied to sales of fine art in California or by a California seller (whether inside California or not).
In 1977, art dealer Howard Morseburg sold two paintings under circumstances requiring him to pay royalties under the CRRA. Morseburg, 621 F.2d at 974–75. He then brought suit to challenge the California law on multiple grounds, including that it conflicted with the 1909 Copyright Act. Id. To resolve this conflict preemption question, we relied on the Supreme
Applying Goldstein, we concluded that the CRRA created “an additional right similar to the additional protection afforded by California‘s anti-pirating statute” and therefore did not conflict with the 1909 Act. Id. at 977–78 (“The crucial inquiry is . . . whether the two laws [i.e., state and federal] function harmoniously rather than discordantly. We find no discord in this instance.“). We expressly declined, however, to consider whether the CRRA was preempted by the 1976 Act. Id. at 975.
C. First Proceedings before the District Court and First Appeal
In 2011, plaintiffs filed putative class-action complaints against Sotheby‘s, Christie‘s, and eBay, alleging claims under the CRRA and derivative claims under California‘s Unfair Competition Law,
The district court dismissed plaintiffs’ complaints with prejudice, holding that the CRRA‘s regulation of sales outside California violated the dormant Commerce Clause and that the offending portion of the statute was not severable. Estate of Graham v. Sotheby‘s Inc., 860 F. Supp. 2d 1117, 1125–26 (C.D. Cal. 2012). On appeal, a majority of this court voted to initially hear the case en banc. Sam Francis, 784 F.3d at 1323. Sitting en banc, we agreed with the district court that the CRRA‘s regulation of out-of-state sales violated the dormant Commerce Clause but held that the offending provision was severable from the remainder of the statute, such that plaintiffs still had potentially viable claims respecting in-state sales. Id. at 1322. We remanded to the three-judge panel to consider defendants’ alternative arguments, including preemption. Id. The panel, in turn, remanded to the district court for it to consider defendants’ alternative arguments in the first instance. See Sam Francis Found. v. Christie‘s, Inc., Nos. 12-56067, 12-56068, 12-56077, 2015 WL 4429309, at *1 (9th Cir. July 16, 2015).
D. Second Proceedings before the District Court
On remand, defendants again moved to dismiss, arguing that (1) the CRRA is preempted; (2) the CRRA effects an unconstitutional taking; and (3) eBay is not a seller or a seller‘s agent subject to the CRRA. In 2016, the district court granted defendants’ motions and dismissed the actions with prejudice, holding that the CRRA was preempted by federal copyright law, as a matter of both conflict and
With respect to conflict preemption, the district court reasoned that the first sale doctrine, codified in the 1909 Copyright Act and reaffirmed in the 1976 Copyright Act, “provides that ‘once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.‘” Id. at 982 (quoting Quality King Distribs., Inc. v. L‘anza Research Int‘l, Inc., 523 U.S. 135, 152 (1998)). The court concluded that the CRRA restricted transactions that the first sale doctrine intended to leave unrestricted and therefore conflicted with federal law. Id. at 983–84. While acknowledging our 1980 decision in Morseburg, the court held that “recent decisions of the Supreme Court and the Ninth Circuit have so eroded Morseburg that [ ] no longer represents a binding interpretation of the first sale doctrine and the CRRA.” Id. at 985.
In the alternative, the district court addressed express preemption, holding that the CRRA “does no more than broaden the distribution rights granted under the Copyright Act” and is thus expressly preempted by the 1976 Act,
II. ANALYSIS
“It is well-established that Congress has the power to preempt state law.” Montalvo v. Spirit Airlines, 508 F.3d 464, 470 (9th Cir. 2007) (citing
The 1976 Copyright Act adopted, for the first time, an express preemption provision in § 301(a) and thereby accomplished a sea change in the relative powers of the states vis-à-vis the federal government over copyright protection. The House of Representatives anticipated that the preemption provision “would accomplish a fundamental and significant change in the present law.” H.R. REP. No. 94-1476, at 129 (1976). “By substituting a single Federal system for the present anachronistic, uncertain, impractical, and highly complicated dual system, the bill would greatly improve the operation of the copyright law and would be much more effective in carrying out the basic constitutional aims of uniformity and the promotion of writing and scholarship.”
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
With respect to the first prong, the subject matter of copyright encompasses “original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”
The second prong is also satisfied—that is, plaintiffs’ state law claims assert rights “equivalent to rights within the general scope of copyright as specified by section 106 of the Copyright Act.” Maloney, 853 F.3d at 1019. To explain why this is so, we begin with a short history of the first sale doctrine. The Copyright Act of 1891 provided that the copyright owner had “the sole liberty of printing, reprinting, publishing, completing, copying, executing, finishing, and vending” the copyrighted work. Copyright Act of 1891, § 4952, 26 Stat. 1106, 1107 (1891). In Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), the Supreme
Congress codified the first sale doctrine in the 1909 Copyright Act7 and later retained it in the 1976 Act. See Adobe Sys. Inc. v. Christenson, 809 F.3d 1071, 1077 (9th Cir. 2015). Today,
In this case, plaintiffs’ CRRA claims assert rights equivalent to the federal distribution right codified in
copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending,” while the first sale doctrine circumscribes that right by limiting it to the first sale of a copyrighted work.
Although the CRRA‘s resale royalty right and
The equivalence of the two rights is further underscored by the manner in which the CRRA both expands and restricts the federal distribution right. The CRRA expands the federal distribution right because, whereas the first sale doctrine limits artists’ right to payment to the first sale, the CRRA grants artists an unwaivable right to a 5% royalty on all downstream sales. See
In short, the CRRA does not merely grant an additional right beyond what federal copyright law already provides but fundamentally reshapes the contours of federal copyright law‘s existing distribution right. This runs counter to
Plaintiffs raise a number of arguments in response. First, they argue that the CRRA cannot be expressly preempted because it creates a monetary, not a distribution, right. According to plaintiffs, the CRRA governs proceeds on the sale of art, not the distribution of art itself; a seller need only pay the artist a royalty, not obtain the artist‘s permission to make a sale. But plaintiffs’ attempted distinction between monetary and distribution rights takes an unduly narrow view of
Second, plaintiffs argue that the CRRA‘s resale royalty right cannot be expressly preempted because artists can create a similar right by contract. Plaintiffs have misunderstood the difference between a law that permits an act and a law that compels an act. Federal copyright law protects the first sale only and permits (by not forbidding) purely private arrangements between an artist and a first purchaser with respect to subsequent sales. The CRRA, however, is a restraint on contract because the artist and the purchaser cannot contract around the droit de suite. The artist cannot agree to waive the 5% royalty; the only variance the CRRA permits is for the artist and buyer to agree that the buyer (as a future seller) will pay the artist more than the 5% royalty.
Finally, plaintiffs point to the legislative history of VARA. In enacting VARA in 1990, the House of Representatives indicated that: “State artists’ rights laws that grant rights not equivalent to those accorded under the proposed law are not preempted, even when they relate to works covered by H.R. 2690. For example, the law will not preempt a cause of action for a misattribution of a reproduction of a work of visual art or for a violation of a right to a resale royalty.” H.R. REP. No. 101-514, 1990 U.S.C.C.A.N. 6915, 6931 (1990). This brief statement postdates the 1976 Copyright Act by over a decade, and at best, represents the House‘s understanding—right or wrong—of how existing law might intersect with the changes proposed in VARA. It is not legislative history of the preemption clause adopted in the 1976 Act. Nor are we aware of any similar statement in the actual legislative history of the 1976 Act. VARA‘s legislative history does not alter our analysis regarding the equivalence of the state and federal rights at issue. See, e.g., Bruesewitz v. Wyeth LLC, 562 U.S. 223, 242 (2011) (“Post-enactment legislative history . . . is not a legitimate tool of statutory interpretation;” rejecting the use of subsequent legislative history as a test for interpreting a preemption clause).
In short, the CRRA falls within the subject matter of the Copyright Act and asserts rights equivalent to those found in
B. Conflict Preemption
Unlike the 1976 Act, the 1909 Act contained no express preemption provision. Our holding on express preemption therefore does not account for plaintiffs’ claims, if any actually exist, that arose between the CRRA‘s effective date of January 1, 1977, and the 1976 Act‘s effective date of January 1, 1978. This remaining sliver of claims is preempted only if it conflicts with the 1909 Act. Our decision in Morseburg, which likewise addressed sales of fine art occurring in 1977, is squarely on point. Its holding that the CRRA does not conflict with the 1909 Act therefore controls our analysis of plaintiffs’ remaining claims. Morseburg, 621 F.2d at 977–78.
Recognizing this, and following the district court, defendants argue that Morseburg has been implicitly overruled. Because neither the Supreme Court nor our court sitting en banc has ever expressly overruled Morseburg, we must look to the “clearly irreconcilable” test of Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003) (en banc). In Miller, we set out the standards
Defendants’ argument that Morseburg has been implicitly overruled has two parts: first, they argue that Morseburg‘s reasoning is inconsistent with the Supreme Court‘s reasoning in Quality King, 523 U.S. 135, and Kirtsaeng, 568 U.S. 519; and second, they argue that Morseburg is no longer viable after our prior en banc decision in this case, Sam Francis, 784 F.3d 1320. In Quality King, the Supreme Court rejected a “cramped reading” of the first sale doctrine and instead endorsed its “broad reach“: “The whole point of the first sale doctrine is that once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.” 523 U.S. at 152 (holding the first sale doctrine applies to copies of a copyrighted work manufactured in the United States, sold abroad, and imported back into the United States). Similarly, in Kirtsaeng, the Court characterized the idea that the first sale doctrine might permit a copyright owner to “exercise downstream control” as “an absurd result.” 568 U.S. at 544 (holding the first sale doctrine applies to copies of a copyrighted work manufactured abroad). The Court further stated that, “even though § 106(3) forbids distribution of a copy of [a copyrighted work] without the copyright owner‘s permission,” “once [the] copy . . . has been lawfully sold (or its ownership otherwise lawfully transferred), the buyer of that copy and subsequent owners are free to dispose of it as they wish.” Id. at 524.
Our prior en banc decision in this case held that the CRRA‘s “regulation of the conduct of the seller and the seller‘s agent is neither ‘minor’ nor a ‘regulation of the proceeds’ alone.” Sam Francis, 784 F.3d at 1324 n.1. Defendants contrast this with Morseburg‘s statement that the CRRA “in no way restrict[s] the transfer of art works.” Morseburg, 621 F.2d at 977. They claim that the combination of the Supreme Court‘s broad description of the first sale doctrine and our court‘s broad interpretation of the CRRA so undermine the foundations of Morseburg that the decision is no longer good law.
To be sure, defendants have identified some “tension between the intervening higher authority and prior circuit precedent.” Robertson, 875 F.3d at 1291. But we are not persuaded that defendants have identified “clear irreconcilability.” The Supreme Court‘s intervening decisions in Quality King and Kirtsaeng have not altered the first sale doctrine in any way relevant to this case. These decisions reinforce the first sale doctrine and contain language that might persuade us to decide Morseburg differently if presented to us today. But the fact that we might decide a case differently than a prior panel is not
The Morseburg panel, of course, was well aware of the first sale doctrine. Morseburg, 621 F.2d at 975 (quoting § 27 of the 1909 Act). Morseburg recognized that the royalty imposed by the CRRA “may well influence the duration of a purchaser‘s holding period of a work of fine art,” but concluded that the “liability” represented by the royalty was not “a legal restraint” on the seller‘s right to “transfer[ ] [the work] without restriction.” Id. at 978. The core of the first sale doctrine—that copyright holders exhaust their distribution right over copies of their work upon the first sale—is the same today as it was over a century ago when the Supreme Court decided Bobbs-Merrill. The fact that the Supreme Court has since described the doctrine in different words and applied it in different circumstances does not make the first sale doctrine clearly irreconcilable with Morseburg.
Defendants’ arguments concerning Sam Francis have greater force, but we find no sure basis to declare Morseburg overruled. Our reading of the CRRA in the prior en banc decision at most contradicts isolated statements in Morseburg; it does not completely undermine Morseburg‘s reasoning or mandate a different result in that case. Compare Sam Francis, 784 F.3d at 1324 n.1 (“The [CRRA‘s] regulation of the conduct of the seller and the seller‘s agent is neither ‘minor’ nor a ‘regulation of the proceeds’ alone.“), with Morseburg, 621 F.2d at 977–78 (“Technically speaking such acts in no way restrict the transfer of art works. No lien to secure the royalty is attached to the work itself, nor is the buyer made secondarily liable for the royalty. The work can be transferred without restriction.“). Speaking of the 1909 Act and the CRRA, Morseburg said that “[t]he crucial inquiry is not whether state law reaches matters also subject to federal regulation, but whether the two laws function harmoniously rather than discordantly.” 621 F.2d at 978. Morseburg upheld the CRRA because it represented an “additional right” not addressed in the 1909 Act, thus comporting with the then-existing balance between state and federal copyright protection. As we have discussed, the 1976 Act drastically altered that balance. But the shift in the legal landscape following the 1976 Act has no bearing on plaintiffs’ claims arising before the 1976 Act‘s effective date.
In sum, Morseburg‘s reasoning would be suspect today, but it is not clearly irreconcilable with intervening higher authority. It therefore controls our analysis of plaintiffs’ claims arising under the 1909 Act. We conclude that plaintiffs’ claims concerning sales occurring between the CRRA‘s effective date of January 1, 1977, and the 1976 Act‘s effective date of January 1, 1978 are not preempted. On remand, the district court should determine if any of plaintiffs’ claims arise between January 1, 1977, and December 31, 1977.
C. Defendants’ Takings Clause Argument
Defendants alternatively argue that the CRRA effects an unconstitutional taking in violation of the Fifth Amendment, as applied to the states via the Due Process Clause of the Fourteenth Amendment. See Schneider v. California Dep‘t of Corr., 151 F.3d 1194, 1198 (9th Cir. 1998). According to defendants, the Copyright Act grants artists a property right in their works but only until they sell the works; after that, the artists have no further property interest. The CRRA upsets this arrangement
Initially, it would seem that defendants’ argument is unavailing. To begin with, it parallels the substantive due process argument that we rejected in Morseburg. In Morseburg, the plaintiff art dealer argued that the CRRA violated the Due Process Clause because he had “lost a fundamental property right.” Morseburg, 621 F.2d at 979. We rejected the argument, holding that the CRRA was “neither arbitrary nor capricious” and did “not affect fundamental rights.” Id. Where a statute passes muster under the Due Process Clause, “it would be surprising indeed to discover” that the same statute violated the Takings Clause. Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223 (1986). Nevertheless, in the instant case, defendants essentially repackage the Due Process Clause argument from Morseburg into a Takings Clause argument.8
In some respects at least, the droit de suite resembles legislation imposing rent control, setting a minimum wage, or requiring a zoning permit. All of these measures impose real economic costs on people or businesses and may result in a wealth transfer to someone else, but they are not, for that reason alone, a governmental taking. See id. at 223 (“In the course of regulating commercial and other human affairs, Congress routinely creates burdens for some that directly benefit others. For example, Congress may set minimum wages, control prices, or create causes of action that did not previously exist. Given the propriety of the governmental power to regulate, it cannot be said that the Taking Clause is
violated whenever legislation requires one person to use his or her assets for the benefit of another.“).
Nevertheless, we will not decide the Takings Clause argument here. Although the CRRA applies only to sales of fine art that occurred after its effective date, those sales might involve fine art the seller acquired before the CRRA‘s enactment. See
III. CONCLUSION
Our decision today means that the CRRA had a short effective life. California‘s statute permissibly coexisted for exactly one year alongside the 1909 Act. Once the 1976 Act took effect, however, the balance of state versus federal copyright protection shifted and the CRRA was preempted by
Appeal Nos. 16-56234 and 16-56235 against Sotheby‘s and Christie‘s are AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings consistent with this opinion. As no claims remain against eBay, Appeal No. 16-56252 against eBay is AFFIRMED. The parties shall bear their own costs on appeal.