After signing free trade agreements with the EU and the UK, the New Zealand government is required to make a number of changes to our legislation - including introducing resale royalties for visual artists. Currently, musicians and authors tend to benefit each time copyright in their works are reproduced, like every time their song is played, or book is first sold. Visual artists on the other hand traditionally only benefit once, on the initial sale.
There have been various non-legislative attempts to address this issue, like collective licensing, and automatic royalties built into smart contracts associated with non-fungible tokens (NFTs). NFTs in particular have skyrocketed in value and mainstream popularity recently, with most major auction houses in Aotearoa now selling fine art NFTs, and global value for NFTs now topping $40 billion. Some prominent New Zealand artists and the estates of some deceased prominent New Zealand artists have followed the trend, with recent sales of NFTs based on works by Rita Angus, Karl Maughan, Gordon Walters, Fiona Pardington and many others. However, despite this change, there are many visual artists for whom most of their revenue still comes from original or limited edition works like paintings, sculptures and original art prints.
Once enacted, the new Resale Right for Visual Artists Bill (Bill) will create a potential new revenue stream specifically for visual artists, enabling them to receive 5% of the resale value when one of their visual artworks is resold, subject to the conditions below. While the 5% resale royalty is not contingent on the art work increasing in value, it does mean that as the artist's reputation grows over their career, the artist benefits directly from any increasing value of their work on the secondary market.
This brings potential benefits for eligible painters, sculptors, photographers and traditional printmakers. But what about NFT-minters? Do they qualify too?
The new scheme
To be eligible to receive the 5% resale royalty (ARR), under the Bill:
- The artwork must be an original visual artwork, or one of a limited number of copies, that is not a building, literary work or musical work (or anything else that is carved out in regulations)
- At least one party must be an art market professional (someone in the business of dealing in visual artworks, like art auctioneers, dealers and consultants) or a publicly funded art gallery or museum. Direct sales are generally exempt, although the parties can opt-in to the ARR scheme by agreement
- The resale must be above a value threshold, which will be set in regulations (likely to be $1,000)
- The resale must have a connection to New Zealand, for example where one party is carrying on business in New Zealand, or the sale occurs in New Zealand. The artist must also be a New Zealand citizen or resident, or from a country with which New Zealand has a reciprocal arrangement.
Under the scheme, the ARR will be paid to a collection agency, who will then distribute it to the artist (after recovering an agency fee).
Sellers and agents (or buyers if there is no agent) can be held jointly and severally liable for the royalty payment, if it is not paid. Importantly, unlike other similar rights, eg moral rights, the artist cannot waive or assign their rights. If they chose to decline the payment, it will go to a cultural fund to support visual artists' career sustainability.
How does the regime sit with other revenue generating schemes, like non-fungible tokens (NFTs)?
The ARR scheme will operate in parallel to other rights that artists might have, for example when an artist licenses their copyright (say, by putting a copy of their painting on merchandise) or (at least in theory) through a smart contract built into an NFT. However, with NFTs in particular, there is some uncertainty as to whether these digital artworks are 'in' or 'out' of the regime, and what the implications of being 'in' might be.
While the ARR scheme specifically includes 'digital artworks' (unlike some overseas equivalent rights):
- It is still unclear as to whether an NFT is an 'original' visual artwork, or if it is simply a representation of ownership. There is also a lack of international guidance on the issue (which is unsurprising, given overseas schemes were introduced over 10 years ago, before NFTs came into the mainstream)
- While most NFTs are bought and sold using cryptocurrency (which can carve them out of some overseas regimes), the Bill contemplates resales being in currency other than New Zealand dollars, or 'paid in kind'. While cryptocurrency isn't the fiat currency, in principle it might be 'paid in kind' consideration.
If caught by the ARR regime, NFTs sold through auction houses or other art market professionals might (at least in theory) be able to 'double-dip' and qualify for both the ARR and a separate NFT-coded royalty.
We think this raises some interesting issues. Will NFT marketplaces need to build in means to pay royalties to the collecting agency, or might sales through a marketplace qualify for the private sale exemption? Are there complications where the NFT author and the artist are not the same person?
While draft regulations under the Bill have been issued, the draft does not currently clarify the Bill's application to NFTs. The regulations could still specifically include or exclude NFTs.
If you have questions about the Bill, please contact one of the authors.
This article was co-written by Allan Yeoman (partner), Philip Wood (partner), Keri Johansson (senior associate) and Kat Dickins (law clerk).
