Art Law Report

Full Ninth Circuit to Review California Resale Royalty Act En Banc

Posted by Nicholas O'Donnell on October 31, 2014 at 7:48 AM

Several weeks ago, the parties to the appeal over the constitutionality of the California Resale Royalty Act (CRRA) briefed the question about whether the Ninth Circuit Court of Appeals should hear the case, rather than a three-judge panel that would otherwise be assigned to the case. The Ninth Circuit granted the petition yesterday, meaning the appeal will now go before the full court.

The issue in the case is a California law that requires royalties on secondary sales of art, something that is not part of U.S. copyright law and is more common in civil law countries as "droit de suite." In 2012, after several artists (including Chuck Close) sued Christie’s, Sotheby’s, and eBay over royalties that they alleged were unpaid, the auction houses defended on the grounds that the law itself was unconstitutional pursuant to the Commerce Clause of Article I of the U.S. Constitution. The argument follows a concept known as the "Dormant Commerce Clause," which is not actually an explicit clause of the Constitution. Rather, it is a way of describing the negative implications of the Constitution’s exclusive grant of authority to Congress to legislate interstate commerce. That is to say, the Dormant Commerce Clause describes the extent to which states are prohibited, by virtue of the Commerce Clause, from passing laws that regulate or unduly burden interstate commerce because that is Congress’s job.

The lawsuit challenged the CRRA as just such an infringement on interstate commerce, and the District Court agreed, striking the law down. The present appeal followed.

Ordinarily, an appeal to the full circuit court follows an adverse decision from a three-judge panel. Typically, the dissatisfied party asks the entire court, which can be several or dozens of judges, to consider the matter as a whole. Here, the Court itself took notice and initiated the en banc review before the initial panel decided the case.

The question to the parties was framed as a question about a possible conflict in earlier caselaw, and likely explains why the Court took the case en banc, not that it foretells anything specific about the likely outcome.

The potential conflict in Ninth Circuit law is between two recent cases. Rocky Mountain Farmers Union v. Corey concerned California’s fuel standards and efforts to regulate carbon dioxide output, California’s Low Carbon Fuel Standard (Cal. Code Regs. tit. 17, §§ 95480–90 (2011)). In Rocky Mountain, the Ninth Circuit held that the law’s provisions were not facially discriminatory to out of state ethanol, nor discriminatory in purpose or effect against either that ethanol or against crude oil.

By contrast, Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris affirmed the District Court’s denial of a motion to preliminarily enjoin the State of California from enforcing California Health & Safety Code § 25982, which bans the sale of products that are the result of force feeding birds to enlarge their livers beyond normal size. The plaintiffs, non-California entities that raise ducks for slaughter, argued that the law discriminated against them as out of state actors, but the Ninth Circuit allowed the law to be enforced.

Dormant Commerce Clause issues fall into different categories. There are those that claim disparate treatment of in-state versus out-of-state actors, and there are those that take issue with more regulatory impositions on commerce that crosses state lines. This case is more of the latter.

As a regulatory scheme that seems to mean to apply itself throughout the Constitution, my initial take has always been that the law would fail constitutional scrutiny, and I was not surprised when the District Court did just that. From another perspective, when one considers the prerogative of Congress to pass a law like the American Resale Royalties Too Act, currently pending in the Congress (and whose sponsor Jerrold Nadler will be at Art Law Day next week), the negative implication is that states may not given the space that Congress occupies in that subject area.

Now the full Ninth Circuit will have its say. Oral argument has been initially scheduled for the week of December 15.

Topics: Legislation, Foie Gras, 538 U.S. 644, N. Randy Smith, 729 F.3d 937, Auction Houses, California Health & Safety Code § 25982, Chuck Close, 730 F.3d 1070, Moral Rights, Commerce Clause, Affordable Care Act, Ass’n des Eleveurs de Canards et d’Oies du Quebec, Judge Jacqueline H. Nguyen, Jerrold Nadler, Christie's, Research & Mfrs. of Am. v. Walsh, California Resale Royalties Act, Ethanol, Dormant Commerce Clause, 491 U.S. 324, U.S. Constitution, Copyright, royalties, Garcia, Ninth Circuit, Cal. Code Regs. tit. 17 §§ 95480–90, Sotheby's, Rocky Mountain Farmers Union v. Corey, Healy v. Beer Inst., Ferdinand F. Fernandez, eBay, Google, Mary H. Murguia

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