United States: The Legal Canvas - Winter 2010–2011 - Part 1

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. In an article that grew out of a recent exhibit at MoMA, we discuss how the doctrine of "fair use" may apply to balance the rights of both artists when a photographer creates a new work of art based on a sculpture. We next look at an ongoing lawsuit involving canvases purchased at the Louis Vuitton shop that was integrated into the ©Murakami show at the Los Angeles Museum of Contemporary Art.

In an article about resale royalties, we examine the most recent chapter in the movement to provide artists with expanded commercial rights. And in an update on the controversy about the effort by Fisk University to sell art from its collection, we note how the judge's implementation of the law differs from the prevailing ethical view of museum associations.

In other articles, we provide updates on the Warhol antitrust litigation and the adoption of UPMIFA in New York, and a warning about sales tax liability if you are a limited partner or a member of an LLC in New York.

We hope you have a happy holiday season, and wish you all the best in the New Year.

"UNDER WHAT CIRCUMSTANCES DOES A COPY BECOME AN ORIGINAL?"

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).

These issues are squarely before a federal court in Seattle, Washington, in a lawsuit brought by sculptor Jack Mackie against photographer Michael J. Hipple. Mackie is co-owner of the copyright in a Seattle public art work entitled "Dance Steps on Broadway" ("Dance Steps") that was installed between 1981-1982. The work includes eight groupings of two-dimensional bronze shoe soles, embedded in the sidewalk, that reflect the steps to popular dances such as the "Foxtrot Weave" and the "Lindy Hop." In October 1997, Michael Hipple took a photograph of a person interacting with some of the steps for the "Mambo." Hipple submitted the photograph to a stock agency, and earned approximately $30 on the sale of the image.

Mackie sued Hipple and his stock agency, alleging a violation of his copyright in the sculpture. The stock agency settled and took the image off its website. In August, the court denied Hipple's motion to dismiss the case as time barred, and the litigation continues.

Hipple is defending the case on two grounds. First, Hipple contends that Mackie's copyright is unenforceable against Hipple's photograph because the elements of the sculpture that are contained in the photograph do not possess the level of originality necessary for copyright protection. The footsteps, after all, reflect dance steps that Mackie did not create. Second, Hipple argues that his inclusion of a portion of the sculpture in the photograph is protected by the doctrine of "fair use."

As we discussed in the Spring 2009 issue of The Legal Canvas, "fair use" is a legal doctrine that became the subject of widespread popular discussion after the Associated Press sued artist Shepard Fairey alleging that Fairey's iconic "Hope" poster of candidate Barack Obama violated its copyright in the photograph on which the poster was based.

The doctrine also recently formed the basis of a federal ruling in favor of a sculptor who claimed that the use of a photograph of his work on a United States postage stamp violated his copyright in the underlying sculpture. Before considering that case and the impact that it may have in the Seattle litigation, it is important to put the doctrine of "fair use" in context.

Background: What is the point of Fair Use?

The Founding Fathers considered the concept of copyright to be important enough to be included in the Constitution. Its purpose is to "promote the Progress of Science and useful Arts," and Congress is instructed to do that by "securing for limited Times" to a creator the "exclusive Right" to his or her creations. In other words, because the Founding Fathers understood that society benefits from the creativity of its citizens, they instructed Congress to provide an incentive for them to create.

The benefit to society that the Constitution seeks to promote is "progress" in science and the arts. Progress necessarily involves "conversation" – both a conversation with what has come before and a conversation among scientific and artistic contemporaries. In the arts, that conversation will from time to time include a specific reference in a work by one artist to the work of another.

MARKET THOUGHTS

That reference can be as subtle as a color, or as brazen as the wholesale appropriation of an image.

In deciding where to strike the balance between the "exclusive Right" of an artist to benefit from his work, and the benefit to society of allowing another artist to use that work for certain purposes, the courts often look to "fair use."

Codified in Section 107 of the copyright law, the doctrine provides that the reproduction of another artist's work may be considered fair (and therefore permissible without getting the other artist's permission) when it is used for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Whether the particular use is fair is determined by considering four

factors on a case by case basis: the purpose and character of the infringing use; the nature of the underlying work (is it more creative or more factual); the amount and substantiality of the portion of the underlying work that is used; and the impact that the infringing use may have on the market for the underlying work itself or derivative works based on it.

In recent years, the first factor – the purpose and character of the infringing use – has become a predominant focus in cases involving the application of the fair use doctrine to works of art. And, more and more, the analysis of that factor has revolved around the question of whether the use is "transformative." As articulated by Judge Pierre Leval in a seminal article in the Harvard Law Review, in order to be transformative, the "use must be productive and must employ the quoted matter in a different manner or for a different purpose from the original. A quotation of copyrighted material that merely repackages or republishes the original is unlikely to pass the test.... If, on the other hand, the secondary use adds value to the original – if the quoted material, is used as raw material transformed in the creation of new information, new aesthetics, new insights and understandings – this is the very type of activity that the fair use doctrine intends to protect for the enrichment of society." The Supreme Court has adopted Judge Leval's notion of transformative use. Over time, the concept has been expanded to include not only changes to the original work, but also uses that facilitate the development of information and education.

Gaylord v. United States – When a memorial sculpture becomes a commemorative postage stamp.

Under the American common law system, the meaning of a statute (particularly one that requires the determination of issues that are as subjective as the factors at issue in the fair use doctrine) is interpreted and developed over time by the application of the statutory provisions to the very specific facts of individual cases. As each case is decided, the law becomes clearer – each decision adding a pixel to a picture that is still unfinished. In February 2010, the United States Court of Appeals for the Federal Circuit added another data point, applying the fair use statute to a case involving an image on a postage stamp.

When Congress passed legislation authorizing the creation of the Korean War Veterans Memorial, a team from Pennsylvania State University submitted the winning proposal for its design. The work would feature a group of stainless steel statues of foot soldiers, titled "The Column." As described in the original proposal, "[f]rom a distance," the statues would have "an elusive, dream-like presence of ghostly figures moving across a remote landscape." Ultimately, sculptor Frank Gaylord was commissioned to complete the Memorial based on the Penn State proposal. Gaylord registered five copyrights related to "The Column" throughout the construction process, each capturing a different design phase. The Memorial opened to the public in 1995.

In January 1996, as a gift to his father, a Korean War veteran, photographer John Alli took a photograph of "The Column" that he titled "Real Life." The photograph captured 14 of the 19 soldiers in the sculpture covered in snow on a grey morning. When Alli decided to sell the photograph, he sought and received permission from the party whom he mistakenly believed owned the copyright. In exchange for the permission, Alli agreed to pay that party a 10% royalty on sales. The party did not notify Gaylord about the transaction; Gaylord sued Alli for copyright infringement; and the case was settled out of court.

In 2002, the United States Postal Service issued a thirty-seven cent stamp using Alli's "Real Life," entitled "Korean War Veterans Memorial." The Postal Service paid Alli $1500 for the use of the photograph, but never contacted Gaylord to obtain a license to use the image of the underlying sculptural work. The Postal Service received almost $17 million in revenue from the sale of almost 48 million stamps; $5.4 million of that revenue was from sales of stamps to collectors who did not use them. In addition, the Postal Service sold other merchandise depicting the stamp.

Gaylord brought suit against the Government, alleging copyright infringement. The Government argued that the use of the image of the Memorial on the stamp was protected by the fair use doctrine. The trial court agreed, and Gaylord appealed.

On appeal, the Postal Service argued that the photographer's choice to capture the figures covered in snow, graying the color to create an image where one could not determine whether the soldiers were human or statue, transformed the character of the copyrighted work and therefore satisfied the first factor of the fair use analysis. The Court of Appeals for the Federal Circuit rejected the argument.

In its decision, the Court methodically addressed each of the four statutory factors, finding that the first three mitigated against a finding of fair use. It found that the stamp had no different or further purpose than the Memorial itself; for each, the purpose was to honor Korean War veterans. Nor did the photographer's decision to photograph the sculpture in the snow (as opposed to warm sunshine) "transform its character, meaning, or message." The Court also found that the revenues that the Postal Service earned through the sale of the stamp clearly reflected a commercial purpose, a criterion that weighs against fair use. The Court next addressed the nature of the sculpture as the underlying work, finding that it was "expressive and creative," as opposed to factual and explicative. The Court also found that the stamp used a substantial portion of the sculpture – 14 of the 19 figures in "The Column." Indeed, the image of "The Column" was both the graphic and conceptual point of postage stamp's design.

The only factor that the Court found to support a finding of fair use was the final one. The Court held that the stamp did not have a negative impact on the market for derivative works – in other words, the fact that the image was used on the stamp was unlikely to affect Gaylord's ability to profit from other works based on the image. Weighing the four factors, the Court concluded that "[e]ven though the stamp did not harm the market for derivative works, allowing the government to commercially exploit a creative and expressive work will not advance the purposes of copyright in this case." The Court found in Gaylord's favor, and sent the case back to the lower court to determine damages to be paid by the government for copyright infringement.

How might Gaylord affect Mackie?

The Gaylord case did not determine whether the photograph of the Memorial was itself protected by the fair use doctrine. The Court's ruling was that the use of the photograph on a postage stamp was not. Its analysis may have been very different had Alli not settled with Gaylord and had been sued for infringement.

The factual record has not yet been developed in the Mackie case, but based on the allegations in complaint, the court's opinion on Hipple's motion to end the case, and a series of press interviews, there is some reason to believe that the outcome of the case may be different than the outcome in Gaylord.

The most compelling (and perhaps legally significant) difference between Hipple's picture of the Seattle sculpture and Alli's picture of "The Column" is the extent to which Hipple staged and designed the image. The Gaylord Court dismissed the artist's decision to photograph the sculpture in the snow as "Nature's choice," and said that it did not change the purpose or character of the underlying work. In photographing the sculpture in Seattle, Hipple arguably took a more active role in creating his image, adding the leg of a person interacting with the dance steps. The leg enters the frame from the top left corner of the photograph and becomes the deliberate focus of the image. The picture becomes less about the sculpture and more about the person who is dancing on it; less about the disembodied concept of dance and more about dance itself. Whether the image of the sculpture will be determined to be transformative is still an open question, but it appears to be a closer call than it was in Gaylord.

A fertile ground for litigation.

There will always be some level of uncertainty in fair use cases. The four fair use factors are predominantly factual and the weighing of them subjective. The outcomes then will depend in large part on who is deciding the case. Different people, and therefore different judges, will each have his or her own view of whether an image has been "transformed."

Cases involving certain forms of contemporary art can be particularly dependent on the court's willingness to entertain and accept fairly sophisticated art theory. A judge faced with a copyright claim involving a straight photograph of another artist's sculpture may or may not be willing to accept the photographer's argument that his appropriation of the image was intended to parody the work, to comment satirically on society, or to serve some other purpose different fromthe purpose served by the sculpture itself.

A potential plaintiff is unlikely to bring a lawsuit when he or she knows that there is no chance of winning. But where the outcome is at least uncertain, there is an incentive to litigate or to threaten litigation. And, because litigation costs money, the threat of litigation creates leverage to procure a settlement.

One way for an artist to avoid litigation is simply to get permission from the artist whose work he is seeking to use. With a license from the original artist, the doctrine of fair use doesn't even come into play and each artist's rights are clear. Alli took that step with Gaylord and the subsequent litigation did not challenge Alli's photograph of the sculpture, only the government's use of it.

Many artists, however, prefer not to seek permission for their art. In some cases it is a matter of sheer artistic pride. In others, though, it relates back to the concept of "conversation" – one artist's ability to comment on the work of another should not depend on the willingness of the other artist to receive the comment. Encouraging and protecting this conversation, and the progress in the arts that it engenders, is the purpose of the copyright law in general and of the fair use doctrine in particular. But in a litigious society, what the law of fair use gives, the uncertainty and expense of litigation may take away (or at least modify).

DEFENDING FAIR USE AGAINST TECHNOLOGICAL BLOCKS

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.

In 1998, the Congress passed the Digital Millennium Copyright Act ("DMCA") as a means of assuring that the balance intended by the copyright laws is preserved in an age of technological change. Among other things, the DMCA generally prohibits the circumvention of technology that controls access to copyrighted material. However, because this prohibition could limit the availability of works that are no longer in copyright and the fair use of works that still are, the DMCA also requires the Librarian of Congress, on the recommendation of the Register of Copyrights, to determine every three years whether access-control technologies are preventing individuals from using works in legitimate, non-infringing ways.

On July 27, 2010, Librarian of Congress James H. Billington issued the most recent set of regulations, identifying six kinds of use that should be exempt from the protective provisions of the DMCA. Two of those exemptions have particular relevance to the art world.

Using Portions of Movies for Commentary

The first exemption allows colleges and universities, documentary filmmakers, and producers of noncommercial videos to sidestep the digital rights management system used to protect DVDs from copying, but only for the purpose of incorporating short portions of the movies on those DVDs into compilations for the purpose of commentary.

This type of use is protected by the fair use doctrine and therefore does not infringe the copyright in the copied movies, but the movie industry's use of copy-protection schemes on DVDs has frustrated attempts to access those movies for non-infringing purposes. This exception allows professors and students, documentary filmmakers, and laymen to freely use content from DVDs to create non-commercial video essays, documentaries, and "mash-ups" for the purposes of commentary and criticism without fear of being charged with violating the DMCA.

Note that the exemption applies only to the circumvention of access controls for DVDs, and not to other technologies used to distribute movies, such as Blu-Ray discs or streaming media technology.

Using Text-to-Speech and Accessibility Features with Electronic Books

This exemption, which has been carried over from the previous list of exemptions, allows readers of electronic editions of books to circumvent access controls that prevent the use of text-to-speech functions or the rendering of the book's text into a specialized format.

The exemption was primarily driven by concerns for the blind and visually impaired; instead of seeking out a Braille or a large-print edition of a book, one could purchase the ebook version and use the text-to-speech or accessibility features on a computer or an ebook reader. But some developers of ebook readers had been pressured by the publishing industry to disable these features. Last year, the Authors Guild pressured Amazon into allowing publishers to disable the text-to-speech function on Amazon's Kindle ebook reader, with the authors arguing that making the text-to-speech feature available for ebooks hurt sales of audiobook versions of the same book. This exemption guarantees that users of the text-to-speech and accessibility features of these readers won't be prosecuted for using these features to read ebooks.

ART MEETS COMMERCIALISM MEETS LAWSUIT: BLURRING THE LINE BETWEEN ART AND MERCHANDISE CAN BE PERILOUS.

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."

Buyer's Remorse

Art collector Clint Arthur visited the Murakami show at MOCA and, after taking some weeks to review the promotional brochure, purchased two of the canvases. At the time of his purchase, Arthur noticed the canvases were not numbered, even though the certificates of authenticity said they were. He nevertheless proceeded with the purchase.

Over the course of the next week, Arthur sent two letters to Murakami. The first complained about the fact that the canvases were not numbered; the second questioned whether each canvas was actually an "original artwork," as stated in the certificate of authenticity. In response to Arthur's letters to Murakami, Vuitton ultimately offered either to correct the certificates of authenticity or to rescind the sale of the canvases and return the purchase price plus interest to Arthur.

Arthur did not accept either offer and instead, in June 2008, filed a class action lawsuit against Louis Vuitton North America. At base, it appears that Arthur was driven to sue because he became convinced that the canvases were not original art, but merely scraps of canvas previously used to make Louis Vuitton goods. The case is being heard by the Federal District Court for the Central District of California.

The action essentially raises two claims under California law – first, that Vuitton had engaged in fraud in connection with the sale of the canvases, and second, that the canvases and the accompanying certificates of authenticity were in violation of California's Sale of Fine Prints Act.

After Vuitton moved unsuccessfully to dismiss the suit, what appears to have been a very contentious period of pre-trial discovery (the period during which each party discloses information about the facts of the case to the other). In one discovery-related order, the court stated, "if [Arthur] or the lawyers for either side engage in any shenanigans, this Court will not hesitate to impose sanctions." Indeed, the court did later impose sanctions in the amount of $6,000 on Arthur's attorney "to deter dubious lawyering."

In November 2009, Vuitton moved for summary judgment; in other words, it sought to have the case terminated by the court as a matter of law. The court substantially denied the motion, holding that there were sufficient issues of fact to require a trial of the case on the merits.

Was there fraud?

The court first addressed the three different statements that Arthur alleged as the basis of his fraud claim: that the canvases were authentic, limited-edition artworks by Murakami; that they were "original artworks"; and that they were autographed by Murakami.

The court held that Vuitton's failure to disclose that the canvases were made of material that Vuitton had manufactured for use in its handbags could not support a claim for fraud. Specifically, Arthur had not shown that it was misleading for Vuitton to describe the canvases as "Monogram canvases revisited by Takashi Murakami and presented in the form of editioned works" without affirmatively disclosing the exact nature and source of the material used. As the court explained, "The question in a nondisclosure case is whether the defendant knows of material facts, and also knows that those facts are neither known nor readily accessible to the plaintiff." The court said there was no evidence that Arthur could not have readily ascertained the nature of the material used for the canvases prior to purchasing them.

The court also found for Vuitton on the alleged misrepresentation that the canvases were "original artworks." The court cited Arthur's own deposition testimony that the "question of what is or is not art cannot be answered." As such, Vuitton's representation of the canvases as "genuine limited-edition Murakami artworks" was at best a "subjective" one that could not be "proven as fraudulent."

Nevertheless, the court allowed the fraud action to proceed as to the allegation that Murakami had not personally signed each canvas. The court found that a declaration submitted by Vuitton's Director of International Development of Production did not provide sufficient factual basis for a dispositive finding on the issue. The declaration stated that Murakami had conceived of the canvases and personally signed them, and included a photograph of Murakami signing the canvases. However, the declaration did not say that the Director had personally seen Murakami sign the canvases, so the authenticity of the signatures remained a question of fact for trial.

What is a "Multiple?"

California's Fine Prints Act ("FPA") requires certain information to be listed on a certificate of authenticity, including details about the process by which a "multiple" was produced. The certificates at issue here did not include that information. Vuitton argued that the FPA did not apply to the canvases because they were not multiples. The court disagreed, holding that the canvases constituted "prints" or "similar art objects" that were "produced in more than one copy." The court also rejected Vuitton's argument that the pieces were unique because they had each been hand mounted on a chassis; the court held that the chassis was not part of the artwork and noted that the California legislature probably did not intend for art dealers to be able to avoid the FPA requirements simply by mounting prints onto frames. Moreover, the court said, even if the chassis were part of the artwork itself, works with identical chassis would also qualify as multiples under the FPA definition.

What's at Stake?

Individually, if Arthur prevails on his fraud claim, he has the right to seek actual compensatory damages plus punitive and exemplary damages. Because the two canvases he purchased were among the first 50 of their respective editions, Arthur paid $6000 for each. His actual damages, therefore, are limited to $12,000. While the amount of punitive damages cannot be specifically predicted, California law requires that punitive damages bear some reasonable relationship to the harm suffered by the plaintiff who is actually before the court and not damage caused to others or society as a whole.

Under the FPA, if Arthur prevails, he is entitled to return his canvases to Vuitton and get his money back, with interest – exactly what he was offered by Vuitton in the first place. However, if he can show that Vuitton's violation of the statute was willful, he can also receive punitive damages of three times that amount – or $36,000, plus interest.

If the court ultimately certifies a class in the case (i.e., allows it to proceed as a class action), then the amount of damages at stake will be multiplied by the number of prints sold to the class members.

Lessons learned.

On a very basic level, the court's opinion demonstrates three truths that by now should be self-evident. First, like every other area of commerce, the art market is governed by laws, and it pays to know about them in advance and to comply with them. Had Vuitton included in the certificates of authenticity a description of how the canvases were produced – as required by the FPA – Arthur would not have had a colorable claim under the statute, and a significant amount of legal expense could have been avoided.

Second, one can only assume – or hope – that Murakami did personally sign each chassis, as represented by Vuitton, and that the failure to file a declaration from the artist to that effect to support the summary judgment motion was simply a strategic mistake. The point, though, is that if you represent to someone that something is true, make sure that it is. Period.

Three, sometimes people will bring lawsuits that seem frivolous and frustrating at first, but wind up having legal legs. A state court judge dismissed a related case brought by Arthur, calling it a "prime example" of "opportunistic litigation." The federal judge in this case referred to it in an earlier ruling as perhaps "misguided litigation." Nonetheless, it is a real lawsuit that has to be defended at real cost.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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