Artists’ contract 4.0

Usually, literary and recording artists profit from downstream payments for their work. The same rarely happens with visual artists. The artist’s resale rights (or Droit de Suite) seek to mend that imbalance. Blockchain might be a promising tool to achieve an effective application of resale rights for visual artists.

The art market comprises a primary market (when an artwork is sold for the first time) and a secondary market. Usually, literary and recording artists profit from downstream payments for their work (secondary market). The same rarely happens with visual artists. Visual artists predominantly profit from the first sale, which gives them no control over the reproduction of their work and no profit from its resale. Thus, only collectors and art dealers receive revenue from the resales of artwork, meaning that visual artists do not have access to “the long-term financial success of their works” and are excluded from the most significant profits that their works may generate, not recognising that the artwork’s value increase is most often based on the artists’ on-going labour.

The artists’ resale right (or Droit de suite) seeks to mend the imbalance by ensuring that visual artists receive a percentage of the reselling price of artworks. Although the Berne Convention for the Protection of Literary and Artistic Works (Article 14ter) sets a minimum standard, its transposition to national law is not mandatory. In the European Union we have the Resale Right Directive, where it is recognised an inalienable right to receive a royalty for any future resales (Article 1(1)). However, this right is restricted by:

i. the need for the involvement of art market professionals (Article 1(2));

ii. a minimum sale price to trigger the resale right (which cannot exceed 3000 euros (Article 2(2)) – artworks under that price threshold will not pay royalties to the author;

iii. profit in royalties may not exceed 12 500 euros (Article 4 (1));

iv. if the seller has acquired the work directly from the author, Member States might choose to restrict it further by not recognising the right until 3 years have passed since the original acquisition of the artwork (Article 1 (3)). However, Member States cannot limit the resale right in the first 3 years if the resale exceeds 10 000 euros.

Nonetheless, the directive additionally predefines minimum percentages corresponding to each artwork’s price gap:

“(a) 4 % for the portion of the sale price up to EUR 50 000;

(b) 3 % for the portion of the sale price from EUR 50 000,01 to EUR 200 000;

(c) 1 % for the portion of the sale price from EUR 200 000,01 to EUR 350 000;

(d) 0,5 % for the portion of the sale price from EUR 350 000,01 to EUR 500 000;

(e) 0,25 % for the portion of the sale price exceeding EUR 500 000.”

If the minimum price is set at 3000 euros, Member States shall also determine the resale right rate at 4% or more (Article 4(1) and.Article 4(3)).

Visual artists’ protection is worsened given that Article 14ter (2) requires reciprocity between countries. This leads to major variations regarding “the existence and level of protection” of resale rights depending on the country and said protection will depend upon the nationality of the author or place of residence. 

There have been increasing efforts to adopt international standards in the form of a multilateral treaty so that visual artists’ rights are protected worldwide,  as well as iniciatives to incentive visual artists to protect their rights via private contracts, like the Artist’s Contract  (a contract model for artists in order to sell  their work).

Blockchain can be used to embed payment towards artists in every reselling of their artwork in the global market. This can be achieved by having smart contracts programmed to execute automatic royalty payments when conditions agreed between the parties are met. Therefore, becoming an alternative to the untransparent market made by collective management organisations (CMOs) and art professionals, Blockchain can be a promising solution because:

– The tamper-proof and non-repudiable features are an “ideal tool to maintain the integrity and authenticity of information on transfers of ownership”;

– It is difficult for CMOs to keep track of all resales (only sales in auctions are public);

– CMOs tend to focus on big names in art, without protecting local artists, as well as indigenous and African artists, whose market keeps growing but the artists that create the pieces are not included in said profit. Blockchain would also open the possibility to profit from “crafts and designs” that cannot effectively rely on Intellectual Property Law;

            – Lowered transaction costs associated with registry, monitoring, negotiation, licensing and payments (as also explored here).  

Within Blockchain, the artwork would be represented by a non-fungible token (NFT) that would take form as a tokenised security. NFTs are not artworks themselves, but simply a record of creation and ownership. (The art created as an NFT and the possible Intellectual Property Law recognition are outside the scope of this insight. On that, see Professor Michael D. Murray). The art itself is usually stored in another type of media (for example, interplanetary files system). In the real world, the artworks could be tracked with CryptoSeal technology (a chip physically attached to the artwork) that would guarantee reliable information on subsequent owners in resales.

The NFTs’ intermediaries can be separated according to their function: platforms that operate as open marketplaces for all minted NFTs (for example, Open Sea); platforms that operate as collection-based marketplaces (for example, Sotheby’s Metaverse); and platforms that operate as curated marketplaces (for example, SuperRare).

Here is a list of NFT initiatives that grant resale rights to visual artists: Fairchain; Monegraph | NFT Marketplaces; SuperRare | CryptoArt | NFT Art Marketplace | Digital Art; DADA • Living Art; Nifty Gateway.

Shortly, some problems may arise from the use of Blockchain:

– resale royalty rights might only provide a significant benefit to a small number of artists;

– smart contracts allow for the payment of a royalty to the original minter on the resale of the NFT, they do not guaranty it. To further understand the possible legal consequences of smart contracts in today’s context;

– interoperability problems may rise,because the various DLT and/or Blockchain are, most of the time, incapable of communicating between each other (there is no unified approach in architecture and software design). This problem is further aggravated since it would require the author to look for its NFT (that could be outside of the platform where it has been originally created). Players in the market are striving to solve this problem by creating tools that could enable the search for the NFT through similarity characteristics (for example, Hive’s image similarity model and PastelNetwork).;

– there is no death in Blockchain, unless the Blockchain dies. If the contracting parties don’t expressively agree that the smart contract will cease to exist 70 years after the author’s death, technically the royalty payment will happen ad eternum. To conclude, Blockchain shows a possible roadmap to better protect visual artists. However, that road map comes with its challenges. Artists shall balance the pros and cons to decide if they should follow the traditional route or revamp their carrer trough Blockchain.

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