May 17, 2012
A group of artists and their heirs brought a class action against Sotheby’s, alleging that Sotheby’s had failed to comply with the California Resale Royalties Act (CRRA). The CRRA provided that whenever a work of fine art was resold in California, or resold anywhere by a California resident, the seller or the seller’s agent – often an auction house like Sotheby's – had to pay a 5% royalty to the artist if the resale price was higher than the original sales price. Sotheby's challenged the CRRA on constitutional grounds, arguing that the statute was barred by the Commerce Clause, effected an impermissible taking, and was preempted by the Copyright Act of 1976.
Judge Jacqueline H. Nguyen, who was elevated to the Ninth Circuit just before issuing the decision, held that the CRRA violated the dormant Commerce Clause because it had the “‘practical effect’ of controlling commerce 'occurring wholly outside the boundaries’ of California.” Drawing on the legislative history submitted by Sotheby’s, the court further held that despite the general rule of restraint in invalidating entire statutes, the court could not sever the CRRA’s extraterritorial provisions; so the CRRA had to be struck down in its entirety. The complaint was, therefore, dismissed with prejudice.
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