Through a public consultation paper issued in June 2008, the UK Intellectual Property Office (UKIPO) has been seeking the views of art market professionals, artists, representatives of artists’ collecting societies, and from deceased artists’ estates, in order to assess the likely impact on the UK art market of the extension of the Artist’s Resale Right (ARR) to deceased artists.
ARR was enacted into UK law in February 2006, but applied only to living UK artists and not to the estates of artists who had died within the past 70 years.
The reason for the consultation is that, when the EU required all its Member States to enact ARR into their national laws by 2006, four countries were allowed to ‘derogate’ or ‘delay’ implementation of the right in respect of deceased artists, until January 1, 2010: the Republic of Ireland, the Netherlands, Austria and the UK. The EU allowed those four countries to derogate/delay because none had previously enacted any form of ARR into their national laws (as had the then 11 other Member States) and were therefore given a few years first to devise and then to establish a workable ARR system for living artists, and to assess whether their respective art markets might suffer damage from contemporary art sales possibly relocating to non-ARR countries (such as the USA, Switzerland, or the People’s Republic of China) in order to avoid the ARR scheme.
If the UK Government allows the lapse of its derogation/delay, then from January 1, 2010 ARR will also apply to benefit the estates of UK artists who will have died within the previous 70 years. The UK Government can, if it wishes, extend its derogation/delay until January 1, 2012, in which case by it must present a reasoned case to persuade the EU Commission, by December 31, 2008. Hence UKIPO’s consultation document, which openly states the UK Government’s current intention to seek that further derogation/delay – for reasons explored below.
Readers will recall that ARR entitles UK artists to receive a small percentage of the purchase price of works (on a sliding scale between 0.25% and 4% of the resale price, up to a maximum of €12,500, for each work sold) whenever a UK art market professional is involved in the resale of a work for €1,000 or more. The resold artwork must be one that is also protected by copyright law, which is why ARR lasts for the same length as copyright, for up to 70 years after the artist’s death (except in the special case of the four countries including the UK that have opted to derogate/delay applying the right to deceased artists until 2010). Art market professionals collect and pay the royalty to one of the two non-profit collecting societies in the UK (the Design and Artists Copyright Society, or the Artists’ Collecting Society), which then relay such payment to artists who have registered with them.
UKIPO offers two principal reasons for extending the derogation/delay for at least a further two years, from 2010 to 2012. First, ‘to provide an extended period of adaptation for the art market, and possibly collecting societies, to ensure that the right can be managed effectively and efficiently’. Second, ‘to minimise any potential negative impact on the market’s economic viability’. In other words, UKIPO needs to be sure that the collecting societies and art market professionals have worked well together over the past two years, in implementing ARR in the UK, and to know whether implementation of ARR in the UK has driven significant numbers of sales to the US’s or Switzerland or China.
Independent research conducted over the past year into the operation of ARR in the UK reports that the art market is currently expanding rapidly, that the UK’s share has grown more than the USA’s in the past two years (since the introduction of ARR early in 2006), and that, to date, the impact of ARR on the art market has been minimal. However, UKIPO expresses UK Government’s concern that the true impact of ARR in the UK may have been masked, to a degree, by its derogation/delay in applying it to deceased artists – ARR currently applies to 10% of all UK art sales, and would apply to 40% if deceased artists were included.
UKIPO is not certain, but believes, that there is a risk that significant numbers of UK sellers are likely to choose to ship their works to dealers and auction houses in the USA or Switzerland or China, solely to avoid ARR applying to their sales of artists who will have died within the previous 70 years. Is this really likely to happen?
The UK government held the same belief throughout the 90s, when it tried to persuade the EU not to require all member states to introduce ARR; but the anticipated damage did not occur, and there is no evidence that such damage is imminent or foreseeable in the longer term. Moreover, the belief that sellers would reconsign their sales from the UK solely to escape the ARR is questionable. Costs of transportation of works for resale beyond the UK to a non-ARR country, the costs of insurance and of any import tax – taken together – are likely in most cases to exceed the amount of ARR royalty payment that had been avoided. Sellers invariably choose their venue and country of sale according to where there is likely to be the greatest number of knowledgeable, interested and monied buyers – irrespective of whether the country of sale operates ARR. In any event, sellers do not in fact pay the ARR royalty, but pass it on to their buyers.
As for buyers, the maximum ARR royalty they would be liable to pay is €12,500 on a single sale of €500,000 or more, representing an average of 2.5% of the resale price; but in the same transaction, say at at auction, they would also be liable to pay a buyer’s premium of around 20% of the hammer price to the action house, amounting to a further €100,000. Auction houses periodically increase their buyer’s premium, and there is no evidence to suggest that such increases have driven away significant numbers of buyers to other auction houses with lower premium rates. For most buyers, the nature and quality and current market value and resale market value of the lot/artwork are the main purchasing criteria: when one is able to spend, say, €500,000 on the hammer price plus €117,500 auctioneer’s premium including VAT, the payment of a further €12,500 for the artist is unlikely to deter many. Few buyers, if any, are reported to have expressed dissatisfaction with paying the ARR, and many have said they are happy to pay the royalty, and to know that the artist will receive a small share of the resale price of the work.
It is encouraging that UKIPO’s consultation paper does not question or argue against the principle of ARR, or its introduction into UK law for the benefit of living UK artists. And, although some criticism might be levelled at UKIPO for an arguably overcautious approach to the extension of ARR to deceased UK artists’ estates, its open public consultation on its reasons for its proposed further derogation/delay is welcome. Let us hope that UK artists, artists’ estates, their collecting societies and art market professionals, submit sound evidence and arguments in response to the consultation, and that UKIPO will be persuaded to advise the UK Government to apply ARR for the benefit of the estates of deceased UK artists, from January 2010.
© Henry Lydiate 2008