Droit De Suite, Copyright’s First Sale Doctrine and Preemption of State Law

The primary focus of this article is whether California’s forty-year old droit de suite statute; the California Resale Royalty Act (CRRA), is subject to federal preemption under the Copyright Act. This issue is now being litigated in the Ninth Circuit, and this article concludes that the CRRA is preempted under section 301(a) of the Copyright Act and under the Supremacy Clause because it at odds with copyright’s well-established first sale doctrine. The basic idea of droit de suite is that each time an artist’s work is resold by a dealer or auction house, the artist is entitled to a royalty, typically five percent, on the resale price even though he or she has not retained copyright to the art object let alone ownership. France has granted its artists this right since the 1920s, the EU harmonized droit de suite in 2001, and about 70 countries now have resale royalty laws but not the United States even though resale royalty legislation has been introduced in Congress sporadically since the late 1970s. Resale royalty legislation was introduced in 11 states but California is the only state to have passed such a law. This statute, enacted in 1976, withstood a preemption challenge under the Copyright Act of 1909 in Morseburg v. Balyon, a 1980 ruling by the Ninth Circuit. Everything then remained relatively quiet until 2011 when Sotheby’s and other art dealers were sued by artists seeking their royalties under the statute. The Ninth Circuit ruled in 2015 that the CRRA violated the dormant Commerce Clause by attempting to regulate transactions outside of California but it treated the CRRA’s sections regulating in-state sales as severable. After the U.S. Supreme Court denied certiorari the case was remanded to the U.S. District Court for the Central District of California which held earlier this year in Estate of Robert Graham v. Sotheby’s, Inc. that the remaining sections of the CRRA were preempted under section 301 of the Copyright Act. Notwithstanding the law of the circuit doctrine the court also concluded that recent decisions by the United States Supreme Court and the Ninth Circuit had so eroded Morseburg that it no longer represented a binding interpretation of copyright’s first sale doctrine and the California statute. Accordingly, the CRRA was preempted under the Supremacy Clause because it conflicted with first sale. The Estate of Robert Graham decision certainly will be reviewed by the Ninth Circuit and it could eventually find its way to the U.S. Supreme Court. The high court has not addressed a preemption issue in the general field of intellectual property since the Bonito Boats decision in 1989, and it has never addressed a preemption issue arising under section 301 of the Copyright Act of 1976. The focus of this article is not about whether the United States should implement droit de suite. Rather, it concentrates on two relatively narrow questions: (1) whether the CRRA is preempted under the Constitution’s Supremacy Clause (conflict preemption) because it disrupts Congress’s efforts to balance the interests of copyright right owners and consumers; and, (2) whether it is preempted under section 301 of Copyright Act (express preemption). This article concludes that although the federal district court might have overstated the impact of the U.S. Supreme Court’s first sale decisions and failed to consider several arguments supporting the California statute, it still got things right: California’s droit de suite statute is preempted under section 301 of the Copyright Act and under conflict preemption analysis because it frustrates the purposes of copyright’s well-established first-sale doctrine