IP Law Daily Auction houses qualify for attorney fees after prevailing on merits of state-law claims for royalties
Tuesday, December 4, 2018

Auction houses qualify for attorney fees after prevailing on merits of state-law claims for royalties

By Pamela C. Maloney, J.D.

The 1976 Copyright Act did not preempt applications for attorney fees filed by two auction houses following a determination that the California Resale Royalties Act (CRRA)—a statute that grants visual artists a right to receive 5% of the proceeds on any resale of their artwork under specified circumstances—was expressly preempted by the 1976 Act with respect to CRRA claims regarding sales that took place after its January 1, 1978 effective date, but not with respect to sales that occurred between the CRRA’s effective date of January 1, 1977, and January 1, 1978, the U.S. Court of Appeals in San Francisco has held. In granting the applications, the appeals court determined that even though the 1977 claims against one of the auction houses had been remanded, the auction house qualified as a prevailing party because those claims were not subject to the CRRA fee-shifting provision (Close v. Sotheby’s Inc., December 3, 2018, per curiam).

The plaintiffs in this case were artists and their successors in interest who sought resale royalties under the CRRA from the statute’s effective date of January 1, 1977, to the present. The plaintiffs purported to bring the actions on behalf of classes of similarly situated persons. The defendants were auction sellers Sotheby’s, Inc., Christie’s, Inc., and eBay Inc. A Ninth Circuit panel had determined that the plaintiffs’ claims for resale royalties under the CRRA were expressly preempted by the 1976 Copyright Act, thus affirming the district court’s dismissal of plaintiffs’ claims that involved any art sales postdating the Copyright Act’s effective date of January 1, 1978. However, the panel reversed the lower court’s dismissal of plaintiffs’ CRRA claims to the extent they involved sales occurring before January 1, 1978, but after the CRRA’s effective date of January 1, 1977, because those claims were not preempted by the operative federal copyright law—the 1909 Copyright Act—which did not contain an express preemption provision. The panel further determined that none of the claims were barred under the doctrine of conflict preemption. Pending before the panel was an application for attorney fees filed by Sotheby’s and eBay under the CRRA’s fee-shifting provision, which provides that the prevailing party in any action brought the CRRA was entitled to reasonable attorney fees, in an amount to be determined by the court. The plaintiffs opposed the fee applications, arguing that the CRRA fee-shifting provision, which was added in 1982, was preempted by federal law, and that Sotheby’s was not a prevailing party.

Preemption. The plaintiffs advanced two arguments in support of their claim that the CRRA fee-shifting provision was preempted by federal law. First, they argued that the panel’s underlying opinion in this case rendered the CRRA "null and void" and, thus, there was no surviving attorney fees provision to apply. Second, the plaintiffs argued that the CRRA’s attorney fees provision was preempted by 1976 Copyright Act. In response to the first argument, the Ninth Circuit panel explained that the plaintiffs had misconstrued the underlying decision, which addressed only the issue of whether their claims for resale royalties were preempted by federal copyright law. The panel’s answer to that question did not control resolution of Sotheby’s and eBay applications for attorney fees. Furthermore, nothing in the text of the CRRA fee-shifting provision indicated a concern over how the prevailing party had prevailed. Recognizing that other courts have awarded fees under similar provisions even when the substantive law had been found inapplicable to the underlying claims, the Ninth Circuit panel concluded that the preemption holding did not render the CRRA fee shifting provision null and void.

The Ninth Circuit panel also rejected the plaintiffs’ second argument, concluding that: (1) the 1976 Copyright Act did not expressly preempt the CRRA fee-shifting provision and (2) that the CRRA fee-shifting provision did not conflict with the 1976 Act. According to the panel, Sec. 301(a) of the 1976 Act expressly preempted only those state laws that dealt with the rights of reproduction, preparation of derivative works, distribution, display, and performance. The CRRA fee-shifting provision did not fall within the scope of the rights specified for preemption purposes and, thus, it was not expressly preempted by the 1976 Act.

In addition, there was no conflict preemption because the plaintiffs brought their action exclusively under the CRRA and, therefore, only the CRRA fee-shifting provision applied to claim for attorney fees. Given that the 1976 Act did not apply to the pending applications for attorney fees, it had no preemptive effect on those applications.

Prevailing party. Having disposed of all claims against eBay in its favor, there was no dispute that it was a prevailing party. However, the plaintiffs argued that Sotheby’s was not a prevailing party because their claims for resale royalties incurred in1977 remained pending on remand. However, the fee-shifting provision only applied to claims involving sales that occurred after January 1, 1983, the effective date of the amendment. Thus, because the only outstanding claims were from 1977, Sotheby’s was the prevailing party for all of the claims that fell within the scope of the fee-shifting provision. Furthermore, California courts have allowed attorney fee awards even in cases in which there has been no decision on the merits, as long as a victory had been secured on the fee-shifting claims. In this case, Sotheby’s had secured a victory on all of the claims for which fees could be awarded and, thus, was unquestionably a prevailing party and was, therefore, entitled to a fee award for the work perform on those claims.

The case is Nos. 16-56234, 16-56235, and 16-56252.

Attorneys: Ira Bibbero (Browne George Ross LLP) for Chuck Close. Philip Besirof (Morrison & Foerster LLP) for Sotheby's, Inc. Hillary A. Hamilton (Skadden, Arps, Slate, Meagher & Flom LLP) for Christie's Inc. John Charles Dwyer (Cooley LLP) for eBay Inc.

Companies: Sotheby's, Inc.; Christie’s, Inc.; eBay Inc.

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