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The Legal Canvas, Winter 2010-2011

Winter 2010-2011

Art and Law

Art and law share a sometimes uneasy co-existence. While as lawyers we like to think that both fields speak to society's higher values, each does so in a very different way.

The rule of law establishes a framework within which society can function; it expresses a communal ethic about how society's needs are to be met and how responsibility is to be allocated. It permits civilization.

Art, on the other hand, creates, reflects and enhances civilization. At its best, it is transcendent. It pushes at the boundaries that define the way we think about ourselves and our existence.

Art law happens where these two endeavors intersect.

In this issue of the Legal Canvas, we explore a number of these intersections.Please click the link to the PDF to read any of the below articles.

In this issue...

"Under What Circumstances Does a Copy Become an Original?" by Gloria Phares and Jo Laird

This is the question posed at the beginning of the catalog issued by The Museum of Modern Art in New York in connection with its recent exhibition, The Original Copy: Photography of Sculpture, 1839 to Today. The exhibition explored how "[t]hrough crop, focus, angle of view, degree of close-up, and lighting, as well as through ex post facto techniques of darkroom manipulation, collage, montage, and assemblage, photographers not only interpret the works they record but create stunning reinventions."

MoMA, of course, explored the question from an art historical and aesthetic point of view. When lawyers get involved, they tend to focus on the legal issues that may attend the use by one artist (the photographer) of a copyrighted work by another (the sculptor).

Market Thoughts by Jane Kallir

In our prior issues, we have offered some of our own thoughts about the state of the art market. Over the summer, we read an essay on the market by gallerist Jane Kallir of the Galerie St. Etienne. We were struck by its insight, and are grateful that Jane agreed to allow us to reprint it here.

The "Great Recession" has officially ended, and auctions are again breaking records, but the excesses of the past decade continue to cast a shadow over the future. Those excesses, which we now know relied largely on fraud, obfuscation and debt, concealed underlying economic weaknesses that will not easily be healed. As income disparities grew to historic levels in the 1990s and 2000s, the notion of an American middle class was sustained only by a combination of easy credit and comparatively affordable consumer goods. Yet the same factors―automation and production in low-wage countries―that made consumer goods affordable, gradually robbed much of the middle class of its livelihood. The art world had been living off the trickle-down from the liquidity generated by cost discrepancies between developed and developing nations, but when that liquidity dried up, so did the trickle.

Defending Fair Use Against Technological Blocks by Gloria Phares and Eric Rasmussen

It is an understatement to say that technology has vastly expanded the ability to access copyrighted material. You need time,patience, or a resident 16 year old to keep abreast of changes.

Some of that increased access has been accomplished at the expense of copyright holders. If, for example, users can figure out a way to download music for free, copyright holders are denied compensation for the use of their copyrighted works – and therefore the incentive, as stated in the Constitution, to "promote the Progress of Science and useful Arts." Not surprisingly, copyright holders who publish work in digital format have sought to create ways to block access to non-paying users.

Art meets Commercialism Meets Lawsuit: Blurring the Line Between Art and Merchandise Can be Perilous by Jo Laird and Jason Zack

One of the best-known endeavors of celebrated pop artist Takashi Murakami is his collaboration with Louis Vuitton. As part of Murakami's ongoing and controversial exploration of commercialism and art, the artist produced a series of textile patterns for the luxury goods manufacturer that have appeared on handbags, wallets, luggage and other merchandise since 2002.

In 2007-2008, the Los Angeles Museum of Contemporary Art presented a retrospective of Murakami's work entitled ©MURAKAMI. The exhibition subsequently traveled to the Brooklyn Museum. To underscore the artist's signature theme, the show included a functioning Louis Vuitton boutique where visitors could purchase Vuitton merchandise. In addition to items like handbags, the items for sale included a series of 16"x16" stretched canvases with Murakami's versions of the traditional Louis Vuitton pattern. The canvases consisted of the same material that had been used in the manufacture of the handbags. The works were produced in limited edition series of 100 in each of five different patterns and were described in a promotional brochure as being canvases that had been "revisited" by Murakami.  Each canvas sold at an average price of $8,000, for an aggregate retail value of $4 million. Accompanying each print was a certificate of authenticity stating that "the Editioned Canvas . . . is an original artwork produced in collaboration between Louis Vuitton and artist Takashi Murakami. This artwork is signed and numbered by the artist on the chassis."

The Changing Face of Artist's Resal Royalties by Jo Laird

In February 2009, a bill was introduced in the New York State Assembly that would require the seller to pay 5% of the sale price to the artist every time a work of art by a living artist is sold in New York for $1,000 or more. The bill was referred to committee, where it remains as of the date of this issue.

The formal justification for the bill was to provide "basic protection of the rights of artists who fall at the very bottom of the economic spectrum. Very few artists are able to support themselves and their families by the income derived from the sale of their works. This will permit artists to benefit fractionally from the appreciation of the value of their works."

In Fisk Litigation, Court's Solomonic Decision Proves Controversial by John Sare and Carrie Trowbridge

In the Summer 2009 issue of The Legal Canvas we covered a case involving the proposed sale by Fisk University of a partial interest in its Alfred Stieglitz collection. In order to improve its desperate financial condition, Fisk had sought leave of a Tennessee court to lift a donor restriction on sale of the collection so that the university could sell an undivided half-interest in the collection to the Crystal Bridges museum in Arkansas. We noted that this case would be one to watch, as it enters the debate on art deaccessioning and grapples with how an institution can honor donor intent when financial needs are pulling in a different direction. After a series of filings and interim decisions this summer and fall, the court recently issued a decision that authorizes the sale to go forward – but with unexpected limitations that have dismayed both parties and will almost certainly be appealed.

Joe Simon-Whelan Drops Antitrust Suit Against Warhol Foundation by Jo Laird

In our Summer 2009 issue, we reported on an antitrust case brought against the Andy Warhol Foundation, the Andy Warhol Authentication Board, and the artist's estate and its executors. The suit was brought by collector Joe Simon-Whelan, who owns a work that the Authentication Board twice declared to be inauthentic. Simon-Whelan alleged that the Foundation and the Authentication Board restrained trade by conspiring to reduce artificially the number of authenticatedWarhols on the market, and engaged in anticompetitive conduct in order to monopolize the market for the re-sale of works by Warhol. In May, 2009, a federal district court permitted the case to go forward.

NYPMIFA - New York's New Rules for Investment Management and Endowment Spending by John Sare, Laura Butzel, Robin Krause and Carrie Trowbridge

In our Spring 2009 issue, we addressed the question of "underwater" endowments and noted that the Uniform Prudent Management of Institutional Funds Act, if adopted in New York, would work significant changes by (among other things) providing greater flexibility to nonprofits in making appropriations from endowment funds.

UPMIFA is a model act promulgated by the Uniform Law Commission, applicable primarily to not-for-profit corporations. By mid-2010 it had been adopted in 46 states and the District of Columbia. On September 17, 2010, UPMIFA finally came to New York, but with unique features that present significant challenges and burdens for the state's nonprofit organizations. New York did not depart dramatically from the uniform statute in the area of investment management, where the statute updates existing law to provide a more detailed standard of care in the management and investment of institutional funds. However, the New York version of UPMIFA – known as "NYPMIFA" – does contain unique provisions concerning diversification of funds and conflicts of interest possessed by agents to whom the investment management function is delegated.

New York Sales Tax: Risks for Limited Partners and Members of LLC's by Matthew Kohley and Rich Upton

New York art galleries generally are required to collect and pay over to New York State any New York sales tax that arises from the sale of a work of art. Galleries that do not properly collect and remit sales tax from purchasers are directly liable for the tax, in addition to any interest and penalties.

The New York art community is no stranger to the dangers of failing to comply with New York sales tax rules. After the 2002 indictment of Tyco International's former chief executive, L. Dennis Kozlowski, for evading New York sales tax on $14 million worth of artwork, many buyers and art galleries were investigated and held liable for unpaid sales taxes.

As dealers discovered in 2002, it was not just the gallery as a corporate entity that could face liability for unpaid sales tax; the owner of the gallery and the persons responsible for the payment of taxes on behalf of the gallery could be held personally liable. A recent decision of the New York Tax Appeals Tribunal makes clear that if the gallery is organized as a limited liability company ("LLC") or a partnership, these aren't the only individuals at risk. Under the December 2009 ruling In the Matter of Santo, any member of an LLC or partnership can be held liable for the entire amount of the entity's unpaid sales tax (including penalties and interest), regardless of the member's day-to-day involvement in the company's business and regardless of the size of the member's interest in the LLC or, in the case of partners, the partner's status as a general or a limited partner.

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