Faced with a class-action suit over artists’ royalties that potentially would expose them to a huge cash verdict, Christie’s and Sotheby’s likely will challenge the constitutionality of the California law on which the claim is based. 

The suit in U.S. District Court in Los Angeles contends that the two big auction houses have ignored their obligation to ensure that 5% of what a seller receives should go to the artist or the artist’s heirs. The law applies to all profitable sales of more than $1,000 — if the works are by American or California-based artists and the seller is a California resident or the sale takes place in California. The royalty siphons $250 from the proceeds of a $5,000 sale and $250,000 from a $5-million sale.

“We have meaningful defenses,” Sotheby’s said in a statement Wednesday, while Christie’s said, “it views the California Resale Royalties Act as subject to serious legal challenges” and “looks forward” to making its case in court.

The courts have been down this path once before.

Eric George, attorney for plaintiffs who include artists Chuck Close and Laddie John Dill and the estate of Robert Graham,  said it’s unlikely Sotheby’s and Christie’s can argue successfully that the law is unconstitutional, since there’s a legal precedent to the contrary.
Soon after the California royalty rule went into effect in 1977, a Los Angeles art dealer, Howard Morseburg, filed a test case with the support of other art dealers, contending that “the state has no business interfering” in art sales. A trial judge and the  9th U.S. Circuit Court of Appeals found otherwise, and in 1980 the U.S. Supreme Court refused to take up Morseburg’s appeal.

But some legal minds aren’t so sure that the Morseburg precedent matters anymore. Because he sued in 1977, his contention that the California law was an unconstitutional intrusion on the federal government's prerogative of making copyright law had to be weighed against provisions of the federal Copyright Act of 1909. The courts found no conflict. But the ground rules may have changed in 1978, when the Copyright Act of 1976 took effect. Writing in 1980 in the Boston College International & Comparative Law Review, Carole M. Vickers noted that the new federal copyright law specifically says that it stands “exclusively” as the law of the land on all copyright-related matters, and that “the statutes of any state” are not valid.

Vickers wrote that the California law “arguably … conflicts” with the federal copyright law, and a 1995 article by Michael B. Reddy in Loyola Marymount University’s Loyola of Los Angeles Entertainment Law Review says that “because of the unambiguous language found in both the legislative history and the text of the Copyright Act of 1976, there are serious doubts” about whether a constitutional challenge to the California resale royalty law would fail again.