Art Law Gallery

A Murality Play

Sheppard Mullin — Wed, 09 May 2012 12:14:14 -0800

By Valentina Shenderovich and Christine Steiner

Public wall murals have been the subject of much attention recently. Legislators for Los Angeles, considered the “mural capital of the world”, are reviewing a proposed city ordinance to preserve vintage art murals and to repeal an existing ban on private murals (enacted as an overzealous attempt to stem graffiti). Wall murals are the focus of attention in other cities as well. Murals are visible and public “public art”, presenting social, political and aesthetic ideas in and on everyday media.

There are few cases involving art murals but recently, Maya Hayuk, a Brooklyn-based muralist and painter, filed suit against RCA Records and Sony Music over the music video “I Only Wanna Give It To You” (the “Video”). The Video by recording artist and musician Elle Varner features one of Hayuk’s murals titled “Sunshine” (the “Mural”), which was originally created by the muralist for the music video of the same name by artists Rye Rye and M.I.A. Although Hayuk voluntarily dismissed the action on April 14, 2012, the complaint touched on some interesting issues.

Hayuk’s complaint, which was filed in the United States District Court for the District Court of Massachusetts on February 12, 2012, alleged copyright infringement in that RCA and Sony incorporated the Mural into the Video without Hayuk’s authorization. Specifically, Hayuk alleged that the Video includes numerous scenes that incorporate videographic reproductions of the Mural and that such use “adds greatly to the mise-en-scene.” Hayuk, whose art has appeared in numerous gallery shows, installations and publications, previously licensed her artwork for use on apparel, consumer electronics, and sporting goods, commanding “premium fees and royalties for the use of her work in commercial settings.” Hayuk alleged that the Video has been a huge financial success for RCA and Sony, noting that “extensive pre-roll, pop-up, overlay, and other display advertising appears in connection with online streams of the Video,” which had been viewed more than 2.7 million times on YouTube at the time she filed the suit.

This case posed a more interesting query than a typical copyright infringement claim because, notably, the Sunshine Mural appears only for an aggregate of twenty four seconds in the four minute long Video – and it does not appear in its entirety, with only portions of the Mural on display at any one time. Courts have routinely dismissed infringement claims based on de minimis use of a copyrighted work (i.e., that the use was so slight that it did not rise to the level of copyright infringement). See, e.g., Dereck Seltzer v. Green Day, (a recent California case discussing fair use of public art as part of a concert backdrop); Forlenzo v. AT&T, (a 2004 California case dismissing an infringement claim as de minimis where small portions of plaintiff’s mural appeared for no more than three seconds, and a larger fragment appeared for one second). However, here, Hayuk alleged that the Mural added greatly to the mise-en-scene. An argument that the Video was aesthetically based upon the Mural could have had enough traction to overcome a dismissal based on de minimus use.

In a recent case involving Rihanna’s “S&M” music video, for example, Judge Shira Sheindlin of the New York Federal District Court allowed copyright infringement claims brought by photographer David LaChapelle to survive a motion to dismiss. David LaChapelle v. Robyn Rihanna Fenty. In that case, LaChapelle alleged that the S&M video used protected expressions from his photographs. The judge found that while the common theme of S&M and elements like leather, whips, ball gags, etc. were not protectable, LaChapelle’s selection and orchestration of props and the way he controlled “angles, poses and lighting” were copyrightable. The judge noted that “an ordinary observer may well overlook any difference and regard the aesthetic appeal [of the video and the photographs]…as the same.” To that end, although the Mural in “I Only Wanna Give It To You” appears in the background for only a portion of the video, often fragmented, one may argue that the Mural informs the colors worn by the performers and the general “look and feel” of the Video.

Perhaps even more intriguing to the Hayuk complaint was the tension between copyright and public space. Despite having been created for use in another music video, the Mural is painted on the side of an abandoned building, easily viewable from the sidewalk, street, etc. As such, it would be difficult, albeit not impossible, to film the building without incidentally reproducing the Mural. Would anyone taking a photograph containing a portion of this publicly viewable Mural have to pay royalties to the artist? If it had gone to trial, a decision in this case could have proven an interesting analysis of the interplay between copyright law and the public space – for now, there is no handwriting on the wall.

Life After Death - Right of Publicity Law

Sheppard Mullin — Mon, 16 Apr 2012 08:47:29 -0800

By Kathryn Hines and Christine Steiner

Society is consumed with celebrity. We can survey Hollywood marriages and divorces, analyze Golden Globe wardrobe choices and comment upon the latest Lindsey Lohan foible. It is not surprising that many artists have channeled this societal obsession, featuring celebrities in paintings, collages and video installations. Moreover, as we approach the anniversaries of the death dates of Elizabeth Taylor, Michael Jackson and Amy Winehouse, commemorative portraits are likely to be in high demand. But when does using a celebrity image in art infringe that celebrity’s right of publicity? It depends. While an artistic rendering of a recognizable person may be protected under the First Amendment, there are limits to this protection.

The right of publicity is a state law intellectual property right. It is a commercial tort of unfair competition if that right is infringed. It can be defined, quite simply, as the right to limit the public use of one’s name, likeness and/or identity, particularly for commercial purposes. To show infringement of the right of publicity, a plaintiff must plead and prove: (1) Validity - That plaintiff owns an enforceable right in the identity or persona of a human being; and (2) Infringement (a) That defendant, without permission, has used some aspect of identity or persona in such a way that plaintiff is identifiable from defendant’s use; and (b) That defendant’s use is likely to cause damage to the commercial value of that persona.

Whether a celebrity retains the right of publicity after death (i.e., a postmortem right) is a complicated question, and the answer varies from state to state. A total of twenty (20) states recognize a postmortem right of publicity – fourteen (14) states by statute and six (6) states by common law. California, a celebrity-friendly state, recognizes a postmortem duration of seventy (70) years, see Cal. Civ. Code § 3344.1. By contrast, New York does not recognize a postmortem right at all, New York only grants the right to living celebrities. See NY CLS Civ. R § 51. Accordingly, a star’s domicile at death is significant when examining whether his or her image can be safely put to use.

Thus, the state of the law seems to be that when a celebrity is the subject of a work that is wholly transformative, free expression will prevail; whereas when the work is not sufficiently transformative, publicity rights will not be outweighed by rights of free expression. This rule is extremely subjective, though, and artists would be wise to tread cautiously. For while you might envision your great homage to Elizabeth Taylor or Whitney Houston, the litigation costs may not be worth the risk.

Suppose I am an artist who wants to use Elizabeth Taylor’s image in a large commemorative mural. Must I secure a license from her estate or will my First Amendment right of expression trump? This question was addressed by the Sixth Circuit in ETW Corporation v. Jireh Publishing, Inc.. There, artist Rick Rush depicted golfer Tiger Woods in a painting entitled “The Masters of Augusta.” The painting is a golf-related collage, featuring one image of Woods. Woods sued Rush, asserting that the painting violated his right of publicity. Rush claimed First Amendment protection and the Sixth Circuit sympathized, reasoning that his work had “significant transformative elements” which made it less likely to interfere with the economic interest protected by Woods’ right of publicity. By contrast, in 2001, the Supreme Court of California ruled against artist Gary Saderup, who specializes in making charcoal drawings of celebrities. In that case, Comedy III Productions, Inc. v. Gary Saderup, Inc., Saderup was sued for producing lithographs and T-shirts which bore the likeness of The Three Stooges. The court held that Saderup had violated the Stooges’ publicity rights as it could discern, “no significant transformative or creative contribution.” The court went on to opine that Saderup’s:

. . . undeniable skill is manifestly subordinated to the overall goal of creating literal, conventional depictions of The Three Stooges so as to exploit their fame. Indeed, were we to decide that Saderup’s depictions were protected by the First Amendment, we cannot perceive how the right of publicity would remain a viable right other than in cases of falsified celebrity endorsements.”

Of course, after 70 years, Elizabeth Taylor’s image will be fair game no matter how presented, as the California statute does not extend beyond that point. (Though one could argue that Elizabeth Taylor as Cleopatra would be permissible no matter what or when, for even Cleopatra would not enjoy a postmortem right of publicity for 2000 years.) However, perhaps after 70 years, celebrity adulation will be a foregone artistic fad. Although, judging from the unprecedented success of the Elizabeth Taylor auction earlier this year and the ever growing string of reality television stars, the obsession with celebrity does not seem to ebbing anytime soon.

Rastaman Vibration

Sheppard Mullin — Thu, 01 Mar 2012 02:08:48 -0800

By Sarah Pavlock and Christine Steiner

The appeal in the case of Cariou v. Prince is shaping up to be the biggest visual arts copyright case in many years. It will likely result in guidance on what qualifies as a transformative use for appropriation art under the doctrine of fair use. Appropriation art "borrows" pre-existing works or images of the creative work of another artist in order to create something new and original. While this alone may seemed packed with copyright issues, it is generally not an appropriation artist's intent to "rip off" another artist's work. Usually, the success of the new work depends on the viewer's recognition of the underlying work; the "aha" moment is the connection between the old and the new as the viewer recognizes the original work or that another work has been taken, and differentiates the creative changes that have been made in the new work.

Patrick Cariou, a professional photographer, spent six years photographing Rastafarians in Jamaica. He then complied those photographs as a book titled Yes, Rasta, released in 2000 by PowerHouse Press. Several years later, in 2007, well-know appropriation artist, Richard Prince, showed his work titled "Canal Zone" at an exhibit in St. Barths. "Canal Zone" depicted a collage of photographs of the Rastafarian people overlaid with brightly colored paints and other images such as guitars, enlarged hands and naked women. Some people depicted in Prince's collages were from the photographs taken from Cariou's Yes, Rasta. Following the success of "Canal Zone," Prince created an entire show consisting of 29 painting, 28 of which had photos taken from the Cariou book. The works were shown at the Gagosian Gallery which heavily marketed the exhibition and the interest resulted in the sale of 8 works.

Cariou sued Prince and Gagosian Gallery for copyright infringement. Prince, in reply, claimed fair use. Fair use is an exception to infringement, built into the Copyright Act. It allows use of the work of another for certain public policy purposes. The New York trial court found that fair use was not available to Prince for these works because, said the court, the use was for a commercial purpose and "Canal Zone" was more of a derivative work of Cariou's photographs than a new and transformative work because Prince changed little from Cariou's underlying work. When asked the meaning behind the work, Prince stated that it doesn't "really have a message" and that his intent in creating the work was to pay homage to other artists. The court found Prince liable for copyright infringement and ordered him to deliver all of his paintings containing Cariou's photographs for impoundment or destruction. Gagosian Gallery was found to be acting in bad faith by not confirming that Prince had a license to use the photos because, reasoned the court, Prince was well known for using the works of others without their permission.

Both Prince and Gagosian Gallery appealed the decision. The Prince brief argues that the artist is not responsible for explaining the meaning or message of his work. While Prince may not have articulated it, there is social and political commentary in the work and, more importantly, the viewer, and not the artist, determines the message of a piece. Gagosian Gallery argues that this ruling would have an immediate chilling effect throughout the art world because showing appropriation art will come to a halt if galleries and museums must check the licensing agreement on each work an appropriation artist creates. The Cariou brief responds that it was Prince's responsibility to prove fair use and he failed, while the court should view the art in the context of its overall message, it must be the message the artist intended and, by this standard, Prince's work fails the fair use test. Several major museums, the Andy Warhol Foundation, as well as Google and licensing services Getty Images and Corbis, have all submitted individual amicus briefs in order to weigh in on the decision.

Beyond this, the larger question is how much must the underlying work be changed in order to constitute a transformation for the purposes of fair use? In considering whether the fair use exception applied, the trial court looked at all 29 of Prince's "Canal Zone" paintings as a whole. Some paintings only used small portions of Cariou's originals while others were effectively the entire photograph, changed only slightly. Prince argues that the court should consider each painting individually to determine if it has been "transformed" enough to fit the fair use requirement. This is important because it would likely allow some of Prince's paintings not to be destroyed.

We will continue to follow this case as it progresses through the appeal. At this writing, the parties are submitting their second round of briefs and it can be expected that both will garner wide interest.

Fashion Designers: Legally Naked?

Sheppard Mullin — Fri, 10 Feb 2012 14:13:14 -0800

By Tyler Baker and Christine Steiner

With New York's Fashion Week upon us, the time is appropriate to examine the intellectual property protections available to some of the most prominent artists in popular culture: fashion designers. No one would seriously question the great artistic talents of many designers. Their imaginative, inventive, and daring creations and their lasting legacies have pushed artistic limits of the fashion world for decades. And yet, despite being undoubtedly artists in their craft, fashion designers do not enjoy the same protection in their work under current U.S. intellectual property laws that their artistic peers enjoy in the worlds of visual arts, film, music and dance.

Fashion designs do not fit neatly into a traditional intellectual property realm. Copyrights generally are not granted to apparel because articles of clothing are considered functional "useful articles," as opposed to non-utilitarian works of art. Design patents are intended to protect ornamental designs, but clothing rarely meets the demanding requirements of "novelty" and "non-obviousness" for patentability. Trademark law, while useful to protect brand names and logos, generally does not protect the clothing itself, and the Supreme Court has refused to extend trade dress protection to apparel designs. [1]

This lack of copyright protection for fashion designers has in part created the phenomenon of "red carpet copycats": companies that hurriedly create and sell copies of the glamorous or bold garments worn by celebrities at red-carpet events. Knockoff goods are a huge part of the fashion industry, and have become common practice. The instantaneous nature of the internet and mobile camera phones has made fashion designs even more susceptible to immediate widespread display and copying.

Over the decades, Congress has gradually expanded the subject scope and duration (currently life plus 70 years) of federal copyright protection. However, Congress has not yet elected to include fashion products in the categories of works entitled to copyright protection. On December 1, 2010, the Senate Judiciary Committee passed a bill called the Innovative Design Protection and Piracy Prevention Act (IDPPPA), aimed at giving copyright protection to clothing designs. The bill was an updated version of the 2006 Design Piracy Prohibition Act, which had stalled in Congress. Unfortunately for designers, and despite strong support from groups like the Council of Fashion Designers of America and the American Apparel and Footwear Association, the IDPPPA bill is currently still pending in Congress. Further, the scope of its protection may not be as wide and strong as many fashion designers would like. Observers note that the bill is very narrow; it protects only truly new designs and the proposed "substantially identical" standard, similar to the definition of a trademark counterfeit, may potentially be circumvented by slight modifications in order to avoid infringement.

Given the limited intellectual property protections available to the fashion world, fashion designers have often attempted to expand the protections they do enjoy. The most recent and prominent example of this is being played out in the case of Christian Louboutin S.A. vs. Yves Saint Laurent America Holding, Inc., currently pending in the U.S. Court of Appeals for the Second Circuit in New York City.

In this case, Louboutin has alleged that some of YSL's all-red shoes infringe Louboutin's trademark in the U.S. for his all-red lacquered "signature soles." What makes the Louboutin case particularly interesting is the artistic hook to the trademark. The district court's opinion denied Louboutin a preliminary injunction and seriously doubted whether a color should be trademarked in the fashion industry. The district court explained that color has a rather unique aesthetic functionality to the world of fashion, in that fashion designers use particular colors on their products not as a source indicator, but as an enhancing or attractive quality of the product. Comparing Louboutin's exclusive use of the color red on shoe soles to Picasso garnering a monopoly on the use of the color blue based on his "trademark" blue period, the district court concluded that the industry needs to use colors on outsoles without restriction to permit designers to make artistic choices in creating their designs. Relevant to the district court's opinion were Louboutin's apparent past admissions that he chose the red sole not purely as a source identifier, but also because of its eye-catching and seductive qualities.

The Louboutin case highlights the odd reality of intellectual property law and the pressure on fashion designers to frame their aesthetic or artistic choices, for which they are known and celebrated, merely as brand identifiers in order to secure intellectual property protection in their products. The ultimate outcome of the case will undoubtedly have great effect on both the fashion and legal worlds, and fashion designers are quite tuned in. For example, Louboutin was accompanied in the Second Circuit courtroom by Diane Von Furstenberg, renowned designer and president of the Council of Fashion Designers of America, a major advocate for stronger laws against copyright infringement in the fashion world.

If nothing else, the Louboutin case holds in balance the legal protection that they may either gain or lose as a result. It also underscores a need for more defined laws in fashion branding and design in the legislative arena, as opposed to the courts. Given the case's national prominence and the various recent congressional hearings regarding the IDPPA, that legislative change may soon be arriving.

[1] See Christine Cox & Jennifer Jenkins, Between the Seams, A Fertile Commons: An Overview of the Relationship Between Fashion and Intellectual Property, Norman Lear Center Conference (2005).

The Year In Review

Sheppard Mullin — Fri, 06 Jan 2012 12:31:39 -0800

By Lano Williams and Christine Steiner

The past year was packed with litigation that ranged from broad constitutional questions to the ever present scourge of forgeries. Art Law Gallery presents highlights of some of the most important cases:

The Walking Dead Copyrights: Conductor Lawrence Golan's long-running "zombie" copyright case was argued before the Supreme Court in October. The case centers around the fate of millions of pieces of literature, music, and art that were previously in the public domain. A treaty that the US signed (TRIPs: Trade Related Aspects of Intellectual Property Rights) and the resulting congressional legislation restored the copyright on the pieces of work in question. For Golan, a professor and conductor at the University of Denver, this meant that the resulting rental fees put a vast body of work beyond the scope of his and other small orchestras with limited budgets. The case has far-reaching implications for the art world as well and involves the copyright protection of pieces by Picasso, Escher, and many other artists. The case below is Golan v. Holder, 609 F.3d 1076 (10th Cir. 2010), granted cert. Mar. 2011, argued before S.Ct. Oct. 5, 2011.

Rastappropriationist: Photographer Patrick Cariou sued high-profile artist Richard Prince, his gallery and the book publisher, for copyright infringement. The case is the most closely followed case in the area of appropriation art. It brings to the fore the booming culture of "remixing" old images to make new art. The advent of the Internet and digitization of media has made it easier and easier to practice this craft. This has pushed the genre up against the limits of copyright, which this case will likely define for the near future. In the case at hand, Cariou was successful at trial and won his claim that Prince had infringed on his copyright, ordering that all infringing copies be impounded and destroyed. The case is Cariou v. Prince et al, 784 F.Supp.2d 337 (S.D. NY, 2011), and is currently on appeal.

Droit de Suite Life: A group of artists and artists' estates sued Sotheby's and Christie's for failure to pay resale royalties per the California Resale Royalties Act. The law generally allows an artist to collect a 5% royalty on any art that is sold for over $1000 if the sale takes place in California or the seller resides in California. The class action lawsuits were filed with the intention of compelling the auction houses to reveal if any sales fall under the specifications of the law. The cases are Estate of Robert Graham v. Sotheby’s, 11- 8604, and Sam Francis Foundation v. Christie’s, 11-08605 (C.D. Ca. 2011). The following week, in a spate of individual lawsuits, the Sam Francis Foundation sued nine California galleries under the same statute. Stay tuned.

He that Filches from Me My Good Name: In June a Canadian art expert, Peter Paul Biro, sued The New Yorker magazine and the author of an article that was critical of him. The lawsuit claims that, "[t]hrough selective omission, innuendo and malicious sarcasm, the article paints a portrait of plaintiff which has no basis in reality, and which has been highly damaging to his reputation." Biro is famous for asserting that he could authenticate a painting through the use of fingerprint analysis. In December, Biro expanded the suit to include news media who reported on the original case and included the allegations. The case is Peter Paul Biro v. Condé Nast, 1:11-cv-04442 (S.D. NY 2011).

Here Today, Gone in 165 years: In December, Knoedler Gallery abruptly shut its doors after being in business for 165 years. The gallery was the home of many great American artists including Homer, Bellows, Pollock and Stella. The owners claimed it was a "business decision," but the gallery was embroiled in one of the most high-profile forgery cases in years. The gallery had sold financier, Pierre Lagrange, a Jackson Pollock painting and Lagrange subsequently found that he was unable to sell the painting through either Sotheby's or Christie's because of doubts over its authenticity. It was then revealed that the FBI was investigating at least 16 other possible forgeries that had all been sold through Long Island dealer, Glafira Rosales, via Knoedler. The case is Lagrange v. Knoedler Gallery LLC, 11-cv-8757 (S.D. NY 2011).

A Can of Worms, A Bowl of Food: The U.S. District Court for the Central District of California ruled that a photograph of a bowl of food on the packaging of a Vietnamese culinary dish that translates roughly as “rice stick, egg roll, grilled meat,” was not sufficiently original, not fixed in a tangible medium, and thus the packaging would not be accorded protection under the Copyright Act. The Court also found that the bowl of food did not show sufficient evidence of distinctiveness to protect the photograph of the bowl as trade dress. This modest dish, er, case, may have significant implications for protection of 3-D sculptures and photographs. The case is Kim Seng Co. v. J&A Importers, Inc., CU10-742-CAS-MAN (C.D. Cal. 2011).

The 2012 edition of the Art Law Gallery will bring more news and views.

Happy New Year from Sheppard Mullin Richter & Hampton, LLP.

Cherchez les Catalogues Raisonné

Sheppard Mullin — Thu, 15 Dec 2011 11:29:17 -0800

By Tyler Baker and Christine Steiner

The success of the art market depends largely on confidence in the authenticity of artists’ works. Traditionally, a work in an artist’s “catalogue raisonné” has been key to confirming the authenticity, and thus value. To that point, a recent lawsuit filed in the U.S. District Court for the Southern District of New York (“S.D.N.Y.”) regarding a purported Jackson Pollock work underscores the importance of the catalogue raisonné in pre-purchase due diligence, and shows that omission from the catalogue could be potentially disastrous to the value of a work. See Lagrange v. Knoedler Gallery, LLC, 11-cv-8757 (S.D.N.Y.) (filed Dec. 1, 2011).

A catalogue raisonné is designed to be a comprehensive compilation of artist works, describing the works in a way that may be reliably identified by third parties. As scholarly compilations of an artist’s body of work, catalogues raisonnés are critical tools for researching the attribution and provenance of artwork. In a catalogue raisonné, the works are arranged in chronological order, and each entry describes the individual work’s dimensions, materials, exhibition history, citation history and ownership information. Typically, a catalogue raisonné is written by the leading experts on an artist over the course of many years’ research. In evaluating a work, such experts examine the work’s overall visual appearance, technical execution, historical context, and even resort to forensics in the quest to confirm or deny whether a work is by the artist’s hand. While historically catalogues raisonnés have been published as books, there has been a recent movement toward digital versions of such catalogs, such as the online catalogue raisonné of artist Isamu Noguchi, recently launched by the Noguchi Museum.

In the recently filed New York lawsuit, Pierre Lagrange, a London hedge-fund executive, and the trust of which he is principal beneficiary, sued the Knoedler Gallery and its former director and president, Ann Freedman, over the sale of a painting advertised as Untitled, 1950 by Jackson Pollock. The complaint for breach of warranties, fraud, and unjust enrichment alleges that the plaintiffs relied on the defendants’ representations in purchasing the purported Pollock painting for $17 million. The plaintiffs add that an unnamed consulting company hired by Lagrange concluded in a report last month that the painting was a fake. The plaintiffs contend that the defendants’ misrepresentations included verbal assurances (supported by allegedly false printed materials) on the authenticity of the work, although the painting was not included in the Jackson Pollock catalogue raisonné. The plaintiffs claim that auction houses Christie’s and Sotheby’s refused to sell the work principally because it is omitted from the Pollock catalogue raisonné, and therefore questions surrounding authenticity, because of that omission, would have doomed any future resale of the work. Additionally, the plaintiffs allege that because the defendants were aware that this omission from the catalogue raisonné would effectively render the work unsalable, the defendants falsely represented that the Pollock catalogue raisonné was in the process of being updated and that the revised version would include the work.

Authors of catalogue raisonné operate under threat of lawsuits because excluding a work from a work from an artist’s catalogue raisonné can so greatly affect its market value. Owners of questionable works may be under great pressure to have those works included in the catalogue, and have turned to the courts on various theories, including antitrust, disparagement and the like. Similarly, as we noted in our last posting, the Andy Warhol Art Authentication Board will dissolve in early 2012, citing substantial legal fees incurred in defense of its authentication activities. And it should be noted that Knoedler reacted to the suit by shuttering its doors after 165 years in business.

Whatever the eventual findings of fact and outcome of the case may be, this lawsuit highlights the critical importance of the catalogue raisonné on the value of a work. Omission from an artist’s catalogue raisonné indeed can prove fatal to any potential resale of a work, notwithstanding any proof the owner may offer to support authenticity. Thus, potential art buyers should exercise due diligence in investigating the authenticity of a work, and should likely seek the advice of impartial third parties in evaluating the genuineness and potential value of a work not included in an artist’s catalogue raisonné.

Authentication Board to Death by Lawsuits

Sheppard Mullin — Tue, 08 Nov 2011 14:44:58 -0800

By Lano Williams and Christine Steiner

The recent news that the Andy Warhol Art Authentication Board, Inc. will dissolve in early 2012 brings the role of authentication boards in the art world to the fore once again. The Board, which has been charged with authenticating the works of Andy Warhol since 1996, has been the subject of controversy, probably owing more to the nature of Andy Warhol's art-making process and his fame rather than anything the Board may have done. Warhol was famous for industrializing the art-making process, frequently directing others to execute works on his behalf. The question of what makes a Warhol is subjective and is open to changing interpretation as scholarship develops, as it involves current thinking on what steps of the art-making process the artist must control in order for a piece to be considered attributable to that artist. The Warhol market is also gargantuan. ArtTactic reports that his art accounted for 17% of contemporary art sales at auction in 2010 and 12% of the total contemporary art sold in the first decade of this century.

A handful of other twentieth-century artists' estates have set up authentication boards, including Jean-Michel Baquiat, Alexander Calder, and the husband and wife, Jackson Pollack and Lee Krasner. The Pollack-Krasner Authentication Board only operated for six years (1990-1996) before dissolving after the completion of the Pollock catalogue raisonné. With the dissolution of the Warhol Board, it begs the question: Are authentication boards more trouble than they are worth?

An argument against authentication boards is that there is a conflict of interest between the authority of the board to authenticate the works of the artist's estate that they represent and the fact that the same interested parties frequently have vast holdings of that artist's works. This has led to allegations that a board would deny authentication of works in the public stream of commerce in order to increase the value of works held by the artist's estate. They in effect hold a monopoly on authentication. The fact that the main auction houses, museums, and dealers understandably would not trade in works that were not verified by an authentication board gave these bodies vast power.

Moreover, authentication boards consistently ask the person submitting for authentication to sign a release from any future claims based on the outcome of the authentication process. This is a hard pill to swallow when the outcome of authentication could mean the difference between a valuable piece of an artistic legacy and a questionable piece of canvas. The Warhol Board literally affixed their imprimatur by either stamping in red ink, "DENIED," or alternatively affixing a black authentication stamp and assigning a catalog number. The Warhol Foundation found itself having to devote more resources to legal fees each year in order to defend its authentication activities. While running the Board was costing around $500,000 each year, the legal fees ran to $7,000,000 last year alone.

The question remains, if there is no authentication board, how will works be authenticated? The short answer, according to Warhol Foundation president, Joel Wachs, speaking to Gallerist, is that, "the Warhol authentication process would now follow the same path it would for any other artist." Most artists do not have an authentication board. The process is left to the purview of scholars and the estates of the artists. A catalogue raisonné produced sometime after the death of the artist becomes the primary source by which art is authenticated. The Warhol catalogue raisonné remains in process. Leading this project are two members of the Authentication Board. But even the publishing of a catalogue raisonné is not enough to fend off legal liability. For example, suit was brought against the Pollock-Krasner Foundation demanding that it include certain works that were not contained in the original catalogue. Even so, the lesson that authentication boards have taught is that the less an artist's estate is actively involved in authenticating a work, as opposed to a passive inclusion of a work in a catalogue raisonné, the less likely these actions will be subjected to legal scrutiny. That is the authentic truth.

Artist Resale Royalties--New Cases under California Law

Sheppard Mullin — Wed, 26 Oct 2011 08:35:27 -0800

By Tyler Baker and Christine Steiner

On October 17, a proposed class of artists filed three federal lawsuits against auction houses Christie’s, Inc., and Sotheby’s, Inc., and internet auctioneer eBay, Inc., alleging that the defendants sold their artwork at California auctions and on behalf of California sellers, but failed to withhold royalties due. The complaints seek class-action status to represent many other artists and allege that the auctioneers engaged in a ongoing pattern of concealing the identities and residencies of sellers who live in California, thereby avoiding the five percent royalty due as agents for the sellers. All three complaints, filed in the U.S. District Court for the Central District of California, allege violations of California’s Resale Royalties Act as well as California’s Unfair Competition Law.

Spokespersons for both Christie’s and Sotheby’s indicated that the auction houses intend to vigorously defend the lawsuits. Likely defenses will include a challenge that the federal Copyright Act preempts the California Resale Royalty Act; although reviewing courts upheld the Resale Royalty Act’s constitutionality in prior challenges based on the 1909 Copyright Act, that topic has not been substantially revisited in light of Congress’ robust amendments to the Copyright Act in 1976.

Enacted in 1977, the California Resale Royalty Act (Civil Code section 986), grants artists five percent of the proceeds from the resale of their artwork in certain circumstances, including if the seller lives in California or the sale occurs in California. Artist's heirs are included in the resale rights for up to twenty years after the artist's death. The law is based on the French ideal that artists have certain moral rights in their works. The particular right upon which the California Act is based is the “droit de suite” or “art proceeds right.” European countries and the European Union have laws similar to California’s Resale Royalties Act, but California is unique among U.S. states in having such a law.

The Resale Royalty Act states that an artist shall be entitled to a royalty upon the resale of the artist’s work of art provided that (a) the artist at the time of the sale is a United States citizen or has been a California resident for at least two years; (b) the seller resides in California or the sale takes place in California; (c) the work is an original painting, drawing, sculpture or original work of art in glass; (d) the work is sold by the seller for more money than she or he paid; (e) the work is sold for a gross price of more than $1,000 or is exchanged for one or more works of art or for a combination of cash, other property, and one or more works of fine art with a fair market value of more than $1,000; and (f) the work is sold during the artist's lifetime or within 20 years of the artist's death.

On the other hand, the Resale Royalty Act does not apply if: (a) the sale is the initial sale of the work and the legal title of the work at the time of such initial sale is vested in the artist; (b) the resale of fine art is by an art dealer to a purchaser within 10 years after the initial sale by the artist to an art dealer, provided that all intervening sales are between art dealers; or (c) the sale consists of a work of stained glass artistry permanently attached to real property and it was sold as part of the sale of the real property to which it was attached.

If a gallery or auction house cannot find an artist, the royalty payments are to be sent to the California Arts Council to distribute to the artist, if the Council can locate the artist. In the event that an artist cannot be located, the funds are to be used pursuant to the Art in Public Buildings program.

Though this little-known law has seemingly slumbered for thirty-plus years, it has been gaining wider attention recently. We will continue to monitor these lawsuits on this blog.

Pacific Standard Time - The Artist's Legacy

Sheppard Mullin — Wed, 28 Sep 2011 04:45:37 -0800

By Jessica Kantor and Christine Steiner

Attention shifts to Los Angeles this Fall, thanks to Pacific Standard Time, a stunning tribute to the Los Angeles post-war art scene. Pacific Standard Time (PST), spearheaded by the Getty Trust, presents simultaneous exhibitions and events at more than 60 Southland cultural institutions. PST provides an ideal opportunity for a closer look at practical business and legal considerations that preserve and shape an artist’s legacy.

Artists face unique issues that must be carefully considered and weighed to ensure the continued life of the creative output and to preserve the artistic reputation. Prudently managed business affairs will minimize problems commonly encountered when closing down a studio and during the transition of business affairs from the artist’s life to the artist’s estate.

First, there is the issue of care for the physical works of art, the critical planning for the inventory, conservation and storage of the artist’s works, including considering an archive as a permanent home for papers and other materials. Second is the issue of advantageously placing the artist’s works; which works should be preserved, which donated, and when, where, how. This naturally leads to the third issue, prudent sales; how much and what part of the inventory should be released for sale each year and through what means? Is this the moment to re-examine the extant gallery relationship? These decisions require knowledge of the art market, including a sense of timing, market conditions, and museum/collector interest.

Getting the house in order also includes appointing executors, attorneys, and accountants who can be trusted, who know the family or estate, who are familiar with and responsible toward the artist’s work, and who have both sensitivity and concern for the future of the artist’s works and artistic reputation. Estate planning considerations for an artist are the same as for any individual: to provide for the surviving children, spouse and others according to the law and the artist’s wishes so as to assure orderly transition and minimize the potential for probate litigation. For an artist, though, preserving and enhancing an artist’s legacy include efficiently managing and planning the estate to maintain continuity and safeguard the assets.

Artists must also consider their intangible assets, which include copyrights, trademarks, licensing potential, and the like. It is important for artists to be aware of whether copyrights and trademarks are registered and/or appropriately titled, if any copyright renewal or termination rights exist, and whether there are any current assignments and licenses of the intellectual property. Artists should also consider licensing decisions to promote accessibility and generate revenue. It is critical to weigh each transaction in terms of its potential for affecting the artist’s stature in the art market. Indeed, one should consider the implications of each decision as it promotes and/or dilutes the overall value of the artist’s oeuvre.

As we examine the post-war period and its influence on the future, we are reminded that artists’ reputations are made by the art world as a whole -- artists, collectors, galleries, the media and art press, museums and other cultural organizations. The artist must identify and express wishes so a comprehensive business and legal framework can be put in place to assure that legacy is preserved in accordance with the artist’s wishes.

Recent Cases Paint Troubling Picture of Art Experts in Poland

Sheppard Mullin — Wed, 31 Aug 2011 04:03:18 -0800

In the current financial crisis, when stock market indexes are falling and the only certain thing in the capital market is uncertainty, investors are paying more attention to art, which in addition to their artistic value, can provide a relatively high rate of return.

Growing demand on the art market results not only in higher prices, but also greater incentive to increase the number of works available on the market. One of the most popular and secure ways to purchase artworks is provided by auction houses or antique shops. Security measures concerning such type of transactions are ensured by professional art experts. They confirm whether particular artwork is genuine, as well as carry out its appraisal. Despite this immense responsibility, there has been an increasing number of cases in the recent decade showing that art experts do not perform their duties in a proper manner. These cases enhance discussion on more accurate regulation of artwork trade and the role of art experts. Below are the best–known cases from the Polish art market:

In 2008, the media reported that the National Museum in Gdansk purchased a counterfeit painting by Wyczółkowski for PLN 80,000 with expertise provided by Prof. Jerzy Malinowski. When the case was disclosed, the museum ordered another expertise from Prof. Dariusz Markowski. Basing on chemical test results he certified that the painting was counterfeit.
In December 2007, the police seized a fake painting by Jan Cybis with a value was estimated at PLN 30,000 . Authenticity of the artwork was questioned by the painter’s son, Dr. Jacek Cybis, who disagreed with the positive expertise of Dr. Hanna Bartnicka–Górska.
In May 2000, Mariusz Jańczuk bought a fake painting by Moses Kisling - “Boy sitting on the chair” for PLN 150,000, which, as stated in a professional expertise from the “Polswiss Art” auction house, was genuine. Its authenticity was questioned by Kisling's son and the case was brought to court.
In March 2001, Dr. Łukasz Kosowski, an art expert from the same auction house, confirmed authenticity of the Henryk Siemiradzki painting - “Salome” which eventually turned out to be a forgery.
In 2005, journalists from TVN (a TV station) and “Rzeczpospolita” (a newspaper) prepared a sting against two art experts: Dr. Irena Kossowska and Dr. Łukasz Kossowski. With the approval of a well-known Polish artist, Franciszek Starowieyski, they hired a young painter to create a fake painting by the artist. Experts not only approved the painting, but determined its age at 46 years and also estimated its value at PLN 3,200 .

These examples exposed serious problems that significantly affected certainty and security measures on the Polish art market.

First of all, it is crucial to emphasize that substantive requirements for a candidate art expert are vague and give rise to reasonable doubt. As a matter of fact, almost anyone can be an art expert. Moreover, experts are neither obliged to have liability insurance nor assume any responsibility for their decisions. In such cases as presented above, it is often an auction house that bears responsibility for an incorrect expertise.

Secondly, art experts should be aware that their activity is also examined by deontological norms. Many combine work as an art expert with museum employment. It is therefore necessary to point out that section 8, paragraph 13 of the Professional Ethics Code of the International Council of Museums (ICOM) explicitly states that persons employed in museum should not undertake other paid employment or accept outside commissions that are in conflict with or which may be viewed as being in conflict with museum interests. In fact, one could argue that presented practices are perceived to be damaging to a museum or the profession as well as matters of professional ethics.

Recent scandals intensified discussions among members of the Association of Polish Antiquarians, which resulted in adoption of a resolution on the procedure for selecting art experts. Its provisions stipulate that the Association will appoint experts upon official request of its member with a recommendation from two other members.

Although these changes shall be perceived positively, it is hardly possible to change a negative trend without significant regulation of the art market. In such conditions art is not always a good investment, but will always remain a matter of taste and personal preferences.

Włodzimierz Szoszuk
adwokat, Senior Partner
Head of IP Practice Group
Wardyński & Partners
Al. Ujazdowskie 10
00-478 Warszawa
tel.: (+48) 22 437 82 00, 537 82 00
fax: (+48) 22 437 82 01, 537 82 01

Doing Business at ART HK: Better, Bigger, Faster, Stronger

Sheppard Mullin — Mon, 15 Aug 2011 03:52:54 -0800

By Jessica Kantor

Click here to read the Chinese version of this article.

On the verge of becoming an international institution, the recent Hong Kong International Art Fair, known as "ART HK," represents an exciting development in the state of the art world in China. This growth has critical, yet profoundly inspiring, implications upon the international art community. Since its humble beginnings in 2008, ART HK has shown rapid growth with over 260 galleries from over 38 countries participating in the recent fair. Momentum of ART HK's success and prominence was recently propelled by an announcement that MCH Swiss Exhibition, owners of Art Basel, the world's biggest contemporary art fair, have just signed an agreement with Asian Art Fairs, the owners of ART HK, to purchase a majority stake in ART HK, which went into effect on July 1, 2011. This tactical move, combined with rising auction revenue, favorable tax considerations, a newfound interest in art as an asset class, and interest based on national identity, cements China’s role in the global art market.

It was recently reported in Artprice.com, a French-based data service, that China ranks number one in fine art auction revenue, surpassing the U.S. Moreover, the contemporary Chinese auction market has grown from just below $1 million in 2002 to $167.4 million in 2010. Prominent auction houses, Sotheby’s and Christie’s Hong Kong have seen sales turnover increase by 300% between 2009 and 2010. The total auction sales value (all categories) for both auction houses in Hong Kong rose by 122 percent, from US$658 million in 2009, to US$1.46 billion in 2010. Even mainland Chinese state-owned auction houses, such as Poly and Guardian, have seen their Chinese sales seasons grow from $397 million in 2009 to $2.2 billion in 2010. This year is also set to become a record year in light of the sale of the Ullen Collection at Sotheby’s Hong Kong in April 2011.

The art world focus in Hong Kong, as opposed to mainland China, may have something to do with the tax advantages it provides. While imported art is taxed by mainland China at a steep 34 percent, Hong Kong offers collectors the advantage of more relaxed sales tax and export policies. Organizers of ART HK are aggressively promoting the incredible tax advantages, since there are no tariffs on the import or export of art as it relates to the initial sale at ART HK.

A newfound interest in art as an asset class has also prompted growth in the Chinese art market. The affluent in China have begun to invest in art as an asset, traditionally viewed as a Western luxury. Observers note that the proliferation of art in China is the steady result of a rise in investment-oriented purchases of art, bolstered by China’s growing wealth, and not merely spontaneous overnight purchases. In response to this, at least three Chinese financial institutions have set up hedge funds investing in Chinese art. Notably there have been a succession of Chinese clients who have been spending millions of yuan recently at New York auctions.

National identity and pride is showing itself to be another significant factor behind the surge of Chinese interest in the art world. Such national pride is evident by a report released by Artprice.com on March 19, 2011 showing that 2010 is the first year that four Chinese artists (Fu Baishi, Qi Baishi, Xu Beihong, and Zhang Daqian) have ranked in the top ten of global art auction earners.

In China, the impact of art fair culture through ART HK is no different than in other emerging markets. Art Basel is itself is a pioneer for developing new markets. In fact, in 2002, the decision to open Art Basel Miami Beach in the U.S. was partly to explore the emerging Latin American market. A roaring success – Art Basel Miami provides a new platform for emerging dealers, contemporary artists, new collectors and the art world cognoscenti.

Popularity of the Chinese market for the international art community during ART HK has clearly prompted auction houses to be active. For example, Christie’s has a partnership with ART HK to hold its spring auctions in the same venue and at the same time as ART HK with sales of art, antiques, wines, watches and jewels. Other auction houses, particularly smaller Asian ones, are similarly following suit with auction sales planned at hotels around town during ART HK.

On May 23, 2011, ART HK and ArtTactic even announced in two art market reports (China Contemporary Art Market Report 2011 and US & Europe Contemporary Art Market Report 2011) that confidence in the Chinese contemporary art market greatly exceeds confidence in its US and European counterparts. In fact, the reports claim that 75% of art industry experts indicate that the Chinese market will continue to grow over the next six months, compared to only 36% of art experts indicating growth in the US and European contemporary art markets.

Hong Kong offers a range of comforts for those doing business in the Hong Kong art market. In addition to the tremendous tax advantages in the importation or exportation of art in Hong Kong, doing business in Hong Kong is made easier by the fact that English is commonly spoken and that Hong Kong adheres to international standards of business law, with a great degree of transparency in transactions. Moreover, in contrast to Shanghai or Beijing, the logistics of obtaining shipments in and out of Hong Kong do not typically involve lengthy turnaround times.

When exporting artwork from Hong Kong, buyers must ensure to complete and submit an export declaration in Hong Kong, as well as an import declaration in the destination country, where import duties and taxes are typically chargeable in the destination country. Where the buyer is shipping the artwork to the same country that the seller originally exported it to Hong Kong from, it may be possible for the buyer to avoid payment of import customs duty in the destination country under a "returned goods relief" procedure, as long as the seller can provide the buyer with the relevant proof of original export.

There are many factors contributing to the strength of China's position in the international art market, including its beneficial tax considerations, remarkable auction revenue, a newfound interest in art within China as either an investment or because of national identity and a global interest in contemporary Chinese artists. With offices in Shanghai and Beijing, these are issues encountered frequently here at Sheppard Mullin. Overall the future of the Chinese art world looks optimistic, and it is clear that the impact of the art fair culture, especially vis-à-vis ART HK, has a crucial role to play in this continued growth.

Art Lawyer Christine Steiner Joins the Practice

Sheppard Mullin — Tue, 14 Jun 2011 04:20:48 -0800

Christine Steiner joins us from her private practice, having previously served as secretary and general counsel of the J. Paul Getty Trust and the assistant general counsel of the Smithsonian Institution.

Ms. Steiner’s practice emphasizes visual arts, public art, nonprofits, foundations, intellectual property, publishing, and art market and general business transactions. She represents art collectors, national and international living artists, collectors' and artists' estates, galleries, museums and cultural organizations, foundations, creative businesses, universities, writers, publishers, and other diverse creative clients.

Click here to see Art Daily's coverage of Ms. Steiner's move to Sheppard Mullin.

The "Starving" Intern: Legal Ins & Outs of Unpaid Internships

Sheppard Mullin — Mon, 14 Mar 2011 07:18:00 -0800

Everyone remembers the first day of their highly touted unpaid internship—nerves twitching, heart racing, palms sweating, eager to perform any mundane task with the utmost perfection to impress a new supervisor. For many, especially in art, fashion, and entertainment, these internships are an individual's big break, granting entrance to a career of their dreams by providing hands-on experience and access to priceless networking opportunities. While unpaid internships have seemingly been a mainstay of the creative industries—even Stephen Spielberg, Tom Ford, and Sylvia Plath found themselves fetching coffee at one point—many other for-profit employers are venturing down the unpaid internship route. What many employers would be surprised to learn is that, according to the U.S. Department of Labor's ("DOL") Wage and Hour Division, there are very few circumstances where a for-profit employer can offer an unpaid internship and still be in compliance with the law. With a struggling economy and a significant increase in unpaid internship programs offered by for-profit employers, this issue has been thrust into the spotlight. Internships are increasingly becoming a crucial component of the business world, and while employers can provide an invaluable opportunity for interns, state and federal regulators across the country are focusing on ensuring employers are not taking advantage of wide-eyed, eager students looking to jumpstart their career.

To determine whether an internship program exempts an employer from having to compensate an intern in accordance with California's minimum wage coverage (codified in Labor Code § 1171 et seq., IWC Orders 1 through 17), California's Division of Labor Standards Enforcement ("DLSE") abides by the six criteria set forth by the Department of Labor ("DOL"):

(1)The internship, even though it includes actual operation of the employer's facilities, is similar to that which would be given in a vocational school;

The major issues related to this criterion are whether the internship relates to an academic program, builds upon previous and continuing classroom instruction, and applies it to "real world" applications in a working environment. The DLSE's evaluation of this criterion will be fact specific, focusing on the relationship between the intern's academic curriculum and the activities performed as part of the program. If the intern receives school credit that is applicable towards the intern's degree, the internship program is more likely to be considered "similar to that which would be given in a vocational school" because it is an acknowledgement by the educational institution that the employer's program adequately substitutes for classroom instruction.

Helpful Tips: There are a few actions an employer can take to increase the likelihood its program will satisfy this criterion. First, require the intern to receive school credit for the internship. This does not automatically satisfy the criterion, but it creates an understanding that the internship is meant to augment the intern's educational experience. It also signals that the intern will be receiving a degree from his or her school and the internship will provide credits that fulfill that degree's requirements. Second, layout the probable activities the intern will perform and ensure that they are related to the objectives and goals of the intern's academic program. This can be done by drafting a document that lists the intern's hours and activities, and requiring the advisor of the intern's academic program to verify, in writing, that the internship complies with and is in furtherance of the objectives and goals of the intern's academic program. Typically, an advisor will sign such a document if the intern is required to write an essay at the conclusion of the internship that reflects the intern's experiences and the employer completes an evaluation of the intern that is sent to the intern's advisor. Finally, an employer should maintain a file for each intern that contains proof of school credit, a record of the intern's assignments, evaluations of the intern's work, and any other paperwork related to the intern.

(2)The internship is for the benefit of the interns or students;

A program is "for the benefit" of an intern if the intern learns transferable skills that will help prepare a student for a career within the employer's industry or related to the intern's academic curriculum. In addition, academic credit for an internship is widely accepted as a "benefit" for the intern. The DLSE explains that the intern must derive more than "some" benefit from the program and the benefit must increase the intern's "marketability" to prospective employers within industries related to the intern's academic curriculum. It should be noted that any training related to the internship should be at no cost to the intern. It is unlikely the DLSE would find an unpaid internship "for the benefit" of the intern if the student had to pay the employer directly to provide training.

Helpful Tips: Similar to the first criterion, it is in an employer's best interest to require an intern to receive school credit for the internship. If that school credit is applicable towards the intern's academic degree it will improve the employer's probability of satisfying this criterion because college degrees are usually considered "marketable." In addition, in an attempt to prepare the intern for a career within the employer's industry, it would be prudent to provide the intern with projects and assignments that cover a wide array of subject matters. A wide array of assignments should not be interpreted to include stapling paper and picking up lunch for the office, rather the intern should be exposed to real substantive opportunities, such as shadowing a supervisor, attending meetings, and conducting research assignments. This will give the intern more hands-on experience in different areas of the employer's industry; thus, better preparing them to parlay their classroom knowledge and internship experience into a relatable career.

(3)The interns or students do not displace regular employees, but work under their close observation;

Previously, the DLSE declared that if a trainee performed any work that could be performed by a regular employee, such as minor clerical work, this factor would not be satisfied and the exemption would not apply. Fortunately for employers in California, the DLSE has begun to relax this interpretation. According to the DLSE, "[a]n overly strict interpretation of [this] factor which fails to recognize both the dynamic real world environments interns are placed and the objectives of the internship program could easily operate to render nearly all bona fide training and internship programs invalid under applicable wage and hour laws" (DLSE OL 2010.04.07). For this reason, the DLSE makes a fact specific inquiry into whether minor or incidental work performed by an intern, which would typically be attributed to a regular employee, effectively "displaces" regular employees. Requiring an intern to work under close supervision of an advisor is a clear indicator that the intern is not displacing regular employees because a regular employee generally is loosely supervised and conducts substantial independent work.

Helpful Tips: This criterion is one of the main culprits that disqualifies an internship program from being exempt from California's minimum wage coverage. An absolute necessity to fulfill this criterion is to assign a supervisor to every unpaid intern. Establishing reoccurring meetings between the supervisor and intern that allow the supervisor to monitor the intern's work, provide advice and instruction, and allow the intern to ask questions will heavily weigh in the employer's favor as it pertains to this factor. The employer should also refrain from assigning the intern clerical tasks, such as collating papers, fetching coffee, or scheduling appointments for the intern's supervisor or other employees. These tasks are not typically considered "educational" and are usually performed by a regular employee. For instance, an intern for a magazine company should not spend time packing and shipping apparel samples back to fashion houses that had provided them for photo shoots. Finally, the intern should have minimal to no contact with clients or customers. If the employer would like the intern to gain experience in understanding how to interact with clients and customers, the intern can shadow his or her supervisor. This allows the intern to observe the interactions and learn, but does not put the employer at risk of failing this criterion.

(4)The employer derives no immediate advantage from the activities of interns or students, and on occasion the employer's operations may be actually impeded;

According to the DLSE, "the key language in this criterion is whether the advantage or benefit the employer receives is immediate" (DLSE OL 2010.04.07). If an intern works alongside regular employees, with little to no supervision or learning opportunities, and performs "the main work of the business," the employer will likely gain an immediate (economic) advantage because the work being performed generates income for the employer and it comes at little or no cost. This criterion is closely related to the third factor above because if an unpaid intern displaces regular employees, the employer is clearly gaining an immediate advantage by not having to pay a regular employee's salary and the work being performed is vital to the employer's business. Conversely, if the intern, on occasion, happens to perform activities that are not directly tied to training or learning, such activities may be de minimis, or inconsequential, if they are truly isolated instances and do not involve substantive work exploited by the employer. The DLSE will conduct a balancing test to determine whether the employer has derived any "immediate advantage," weighing any potential benefits the employer receives from the intern against any benefits the intern gleans from the program and any detriments the employer suffers as a result of the program. The role of the supervisor is key under this test because supervising an intern is considered a detriment to the employer. It takes away time and resources from the supervising employee, which ultimately costs the employer.

Helpful Tips: Along the lines of the tips above, an employer should require the student to receive academic credit, assign a supervisor to each intern, offer a variety of assignments, and schedule meetings between the intern and supervisor. For the reasons previously discussed, these steps will hopefully offset the benefits, if any, the employer is receiving from the intern. In addition, the employer should refrain from using any work product created solely by the intern in any of the business' day-to-day operations. This would likely be viewed as an immediate advantage for the employer and could potentially cause the program to fail this criterion. For example, a graphic design firm should not exploit an unpaid intern's designs created during the internship by making them the only, or crucial, component of a client's new marketing campaign.

(5)The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and

While this factor seems self-explanatory, it should be noted that it does not bar an employer from extending an offer to an intern at the conclusion of the internship program. This factor is satisfied so long as at the onset and up to the conclusion of the internship the intern is not led to believe that simply completing the internship will entitle the intern to a job with the employer. Remaining consistent with the other factors of the test, this factor emphasizes that the program should be concerned with providing experience, educating, and preparing interns for a specific career or industry, not for a job with the employer.

Helpful Tips: Before beginning the internship, have each intern acknowledge, in writing, that there is no guarantee of employment after completion of the internship. It would also be wise to inform all employees and intern supervisors to not promise or suggest to the intern that he or she will be hired after they complete the internship.

(6)The employer and interns or students understand that the interns or students are not entitled to wages for the time spent in training.

Please note that minimum wage laws are protected against waiver. Thus, if the internship program does not pass this six-factor test as a whole, an intern's acknowledgment that he or she is not entitled to wages or an outright waiver of wages during the internship will be of little to no consequence.

Helpful Tips: The simplest way to satisfy this criterion is to have all interns acknowledge, in writing, that they are not considered employees at any point during the internship and are not entitled to wages for time spent in the internship program.

Evaluating the Test as a Whole: "All or Nothing" or "Totality of the Circumstances"?

The DOL and DLSE evaluate the six-prong test laid out above in very different fashions. The DOL follows an "all or nothing" review standard, which means that an internship program must satisfy all six criterion to pass the test. On the other hand, California now abides by a "totality of the circumstances" approach, which means that an internship program is evaluated in its entirety, weighing all six factors against one another in order to determine whether it passes the test. It should be noted that all states follow their own variation of the DOL test and evaluate their test differently. Consult your state's labor department to confirm its test and standard of review used to evaluate unpaid internship programs.

"All or Nothing" Standard of Review: The Department of Labor

Under this approach, an internship program must satisfy all six criterion to find that participating interns or students are not employees under minimum wage laws, which makes the program exempt from paying the intern at least minimum wage. Therefore, if the employer fails to satisfy just one of the above six factors, then the entire program will be disqualified from exemption and the intern must be compensated for all hours worked at a rate equivalent to the Fair Labor Standards Act ("FLSA") minimum wage or the employer's state mandated minimum wage. Currently, the DOL and 5^th Circuit abide by this standard of review. New York State Department of Labor ("NYSDOL") also follows this approach (the NYSDOL test includes five additional factors on top of the six set forth by the DOL). Although the DOL's Wage and Hour Division has strictly adhered to this approach as it pertains to unpaid training programs not affiliated with an academic institution, it has consistently held that academically oriented programs designed primarily for the benefit of the student will not be deemed to create an employment relationship. This precedent hints at the DOL abating its review standards for unpaid internship programs that are included as part of the interns overall academic curriculum. But, given the DOL's recent public comments against unpaid internship programs offered by for profit employers, the DOL's stance on these programs is blurry, at best. One thing is for certain, the DOL is emphasizing this issue and claims it will investigate and audit more for profit employers that utilize unpaid interns. The final opinions of these future audits should shed more light on the DOL's standard of review for these types of internship programs.

"Totality of the Circumstances" Standard of Review: California

A "totality of the circumstances" approach allows a reviewing body to consider an internship program in its entirety to determine whether the interns participating in the program are considered employees as it pertains to minimum wage laws. This allows an employer's program to fail certain factors of the test, but still qualify for exemption from minimum wage laws because the other factors weigh so heavily in the employer's favor. Although this approach gives the employer more leeway to pass the test, the more straightforward criteria, such as the DLSE's final two factors, are still likely to be required to pass. For instance, if an employer informs its intern that he or she will be hired at the end of the internship and allows the intern to think he or she will be compensated during the internship, it is not likely that school credit or any other benefit the intern is receiving will compensate for this blatant disregard of the final two factors of the test. On the other hand, if it is questionable that the employer may be receiving some benefits from the intern or the work performed by the intern could be perceived as displacing a regular employee, an employer's program could still pass the test if the intern was receiving a clear and substantial benefit from the internship and the other factors were met.

In the past, California's DLSE followed the "all or nothing" approach in applying the DOL's test, as well as supplemented the test by adding up to six additional factors for review. This changed on April 7, 2010, when the DLSE adopted a "totality of the circumstances" approach, actually citing a DOL opinion that stated "[w]hether trainees are employees … will depend upon all of the circumstances surrounding their activities on the premises of the employer" as precedent. The DLSE reasoned that the "all or nothing" test could be too restrictive and is not a proper application to evaluating modern day internship programs. To many, this is a reasonable conclusion given that the DOL's test and reasoning is based on a 1947 Supreme Court case, Walling v. Portland Terminal Co., that involved a training program for railroad workers. In the current working environment, especially in regards to white collar jobs, employers offering an unpaid internship program are typically receiving some type of benefit from the intern, and this approach allows the DLSE to consider the program as a whole and whether the perceived benefit of the employer is equal or less than the benefit the intern receives. Under this approach, the "benefit" factors are more likely to be satisfied if the program is mutually beneficial for the employer and intern.

Risks for Employers Associated with Unpaid Internships:

Although California appears to be moving towards a more flexible standard for reviewing unpaid internship programs and their exempt status from minimum wage laws, employers still face substantial risks associated with unpaid internships. The "totality of the circumstances" approach is not widely accepted amongst the states and given the warnings from many state labor departments and the DOL, an employer should not take too much solace from operating in a state following this approach. It is still in the employer's best interest to meet all six criteria because an audit from the DOL may return a failing result even if the employer's state labor department has cleared the program, resulting in penalties for the employer. If the DOL concludes that an employer's program is not exempt from the FLSA minimum wage coverage and the interns are actually employees, the employer could be forced to pay back wages (at the minimum wage rate), payroll taxes not withheld, unemployment insurance, Social Security, interest, and attorney's fees. Furthermore, federal law allows for a court or government agency to enforce liquidated damages on the employer, which is defined as double the unpaid wages.

Even if an unpaid intern is not considered an employee, employers could still face personal injury liability for injuries suffered by the intern while participating in the employer's internship program. To limit this liability, it is a sensible idea to provide workers' compensation coverage for interns and volunteers. This is not a requirement by law, in most states, but it will help limit the employer's liability for any injuries suffered by interns or volunteers at the employer's facilities during their time spent with the employer.

Conclusion

Ultimately, an internship program can be an invaluable tool for both the employer and intern, mutually benefitting both parties. An intern can interject new ideas and a modern perspective to a design firm, production studio, or magazine, and at the same time, these entities help educate and groom the intern for a successful career in their industry of choice. As more employers begin to utilize internship programs, the relationship between intern and employer clearly becomes more complicated when the intern is unpaid. Given the DOL's commitment to increasing audits for these types of programs, prudent employers should ensure that their unpaid internship programs comply with the law.

Join us for The Business of Art: A Forecast for 2011 - Tuesday, March 8, 2011

Sheppard Mullin — Thu, 17 Feb 2011 17:00:59 -0800

In the age of skyrocketing auction prices, the explosion of global art fairs, and increased digitization from iPad masterpieces to the Google Art Project, how are artists, galleries, and cultural institutions around the world adapting to recent trends? Gain insights on how the boundaries of law and conventions of business shape the arts in 2011. Take this opportunity to learn about licensing, digital innovation, and sponsorship in the profit and non-profit arts landscapes with a round table of Los Angeles thought-leaders. Join USC Art Law Society and Sheppard Mullin Richter and Hampton LLP, for a dynamic dialogue on the Business of Art for 2011.

Panelists:

James R. Gilson – Vice President & General Counsel, Natural History Museum of Los Angeles County
Addison Liu – Co-Founder, HVW8 Art + Design Gallery
Christine Steiner – Attorney at Law, Law Offices of Christine Steiner
Jessica Kantor – Moderator, Sheppard, Mullin, Richter & Hampton LLP

When:
Tuesday, March 8, 2011

Where:
The Fisher Museum of Art, USC
823 Exposition Blvd., Los Angeles, CA 90089
Driving Directions to USC.pdf
Parking and Walking Directions to Fisher.pdf

Time:
Reception: 6:00 - 6:30 p.m.
Program: 6:30 - 7:30 p.m.

RSVP:
uscartlawsociety@gmail.com

MCLE:
This activity complies with standards for Minimum Continuing Legal Education prescribed by the California State Bar and is approved for 1.0 hour of MCLE credit. The University of Southern California is a State Bar of California approved MCLE provider.

Presented By:

Extreme Makeover: Arts Edition

Sheppard Mullin — Thu, 17 Feb 2011 09:36:51 -0800

The notion that the arts make our culture "richer" is commonplace in our vernacular, but an undeniable trend has emerged giving an entirely new meaning to the phrase: across the board, the country’s nonprofit arts and culture industry has grown by twenty-four percent over the past five years, generating over $166 billion in economic activity a year. Art can be big business, and not just in cosmopolitan meccas like New York and Los Angeles. Across the United States, small and midsized cities are harnessing their creative energy to jumpstart their local economies, often with striking results. Cities that have taken heed of this trend have been rewarded in multiple ways—from the rehabilitation and development of uninhabitable areas of the city to the welcoming of tourists, businesses, and well-heeled residents to those very areas. One seminal example is New York’s Soho and Tribecca neighborhoods, which now exceed the famed Upper East Side and Central Park West neighborhoods in rental and real estate prices. It is a reversal of the commonly held notion that artists drain resources, rather than attract them. Perhaps no city has been more successful in exploiting the economic potential of the arts than Paducah, Kentucky, a town of 27,000 which got the Extreme Makeover formula just right when it implemented what has come to be known as an Artist Relocation Program.

Ten years ago, artists were lured to the blighted downtown neighborhood of LowerTown by the prospect of free home ownership and creative autonomy in developing their properties. As a result, Paducah today has been transformed into a thriving community of galleries, shops, and cafes. It is just the kind of place that attracts visitors and tourism. Paducah's tourist revenue has drastically increased from $66 million in 1991 to nearly $287 million in 2009. Since the Artist Relocation Program began, the city has attracted 234 new businesses, created over 1,000 jobs, raised over $52 million from private investors and invested nearly $50 million from public funds. Tom Barnett, Paducah's former city planning director, boasted that for every dollar the city has put into the program, it has received $14 back—an extremely impressive return on its investment. Paducah has indeed become a national model for how a city can reinvent itself as a cultural destination.

Paducah is hardly different in its skeleton than countless cities across the country. It suffered from both a loss of the economy that had helped it prosper (in this case, a uranium enrichment plant), and perhaps more substantially, from suburban flight. LowerTown, which is the oldest neighborhood in the town, was once a thriving, self-contained neighborhood. But as its older residents passed on, the next generation showed little interest in returning from their larger homes outside town. LowerTown’s homes were gradually chopped up into apartments and largely neglected. It is a story repeated across the country. Now, many of these cities are mimicking the Paducah strategy. Chattanooga, Tenn., Pawtucket, R.I., and Oil City, Pa., provide just three of many examples of smaller cities that are wholeheartedly embracing the idea of an Artist Relocation Program.

When pursuing a rehabilitation process, city governments and planning committees begin by first consulting the current zoning laws and maps. Fortunately for Paducah, LowerTown was already designated as a mixed use zone, thus it did not have to drastically adjust the districts' zoning laws. Mixed use zones accommodate multiple land uses in one zone, allowing a retail store to sit next to a single-family home or a restaurant to be housed on the first floor of a 100-unit condominium complex. On the other hand, conventional zoning, often referred to as Euclidean zoning, divides a city into specific and separate districts and assigns each district a permitted land use, such as residential, commercial, or industrial. To further complicate matters, Euclidean zoning also utilizes overlay zones to control land use, so for instance, a lot will be designated “commercial” and then in addition, the overlay rules will mandate that each lot be a minimum of 10,000 square feet. Zoning laws were originally written to be “as of right.” This means that by consulting the zoning ordinance governing their land, owners can determine what types of projects they are able to develop, subject only to the city’s verification that the owner's plan complies with the applicable zoning laws. There has been a distinct trend over time to move towards discretionary zoning, which grants a city the right to review virtually all land use projects within a zone and determine whether the project will be approved, rejected or approved with additional conditions. Developers typically prefer ‘as of right’ zoning over discretionary zoning because discretionary zoning requires a public hearing, which often leads to increased costs and time. While most cities have employed discretionary zoning on mixed use zones, Paducah continued to utilize ‘as of right’ zoning in order to encourage growth and minimize expenditures for new developers.

Specifically tailored zoning ordinances allowed Paducah to effectively control both the aesthetic character of renovation projects and the intent of artists and businesses relocating to the city, in order to ensure the city’s rehabilitation project evolved into the community the city hoped to build. Further, Paducah took advantage of its mixed use zoning to enable artists to use their residences as both a home, studio, and sometimes even a gallery, leading to more affordable property values and rental costs. In addition, mixed use zones naturally lend themselves to more compact, close-knit communities that are organized to make walking and biking easier and more pleasant. This is helpful for an art community because it connects artists with the community while simultaneously providing the public easy access to artists' works and galleries. It also leads to more “mom and pop” owned cafes and boutiques that serve as social hot spots for the local community.

In addition to offering mixed use real estate, Paducah provided qualifying artists with financial incentives to relocate to the city, as well as affordable properties to purchase in connection with a reimbursement program for artists who choose to restore their newly purchased property. For instance, Paducah offered relocating artists up to $2,500 in moving expenses, properties for $1 with an approved qualifying proposal, a $2,500 reimbursement for architectural and professional improvements and up to $5,000 for rehabilitation costs associated with the new property. In addition, the locally owned Paducah Bank offered artists long-term loans with generously fixed interest rates to finance the purchase and renovation costs of their homes. After approving these legislative measures, Paducah began actively seeking out artists via commercials and advertisements that portrayed Paducah as a quirky southern town which embraced the arts. The Artist Relocation Program and successful PR campaign have incentivized over 75 artists to relocate to LowerTown from across the country, helping to reduce the town's crime rate and revive Paducah’s economy.

Further, the significant twenty-four percent growth in the country’s nonprofit arts and culture industry can largely be attributed to the substantial amount of event-related spending by arts audiences. Art and cultural events generate economic activity for local businesses, including restaurants, hotels, retail stores and parking garages. Astutely realizing this potential, Paducah organizes large-scale events to entice tourists, such as the annual quilting convention that brings in nearly 40,000 tourists and the LowerTown music festival. During these events, the city's "no vacancies" signs are lit, restaurants are hopping, and local boutiques are brimming with customers. In addition, Paducah plans local events to encourage residents to socialize and support one another. An example of this is Paducah's "Live On Broadway" series that occurs every Saturday night in the summer. At these events, the city provides free live music, public art demonstrations, and horse-drawn carriage rides throughout the downtown district. Paducah residents are encouraged to support their community by shopping at local galleries and boutiques that remain open late into the evening exclusively for the event. Thus, Paducah effectively capitalizes on the arts' economic potential by utilizing both large and small scale events to attract tourists and local residents.

Paducah's future appears to be in good hands under the guidance of Mayor Bill Paxton, who explains, "As a Paducah native, I have watched the City grow and change. It’s always been known as a hub for river traffic and a regional destination for shopping, entertainment, employment, education, and medical facilities. But with the artist relocation program that revitalized LowerTown, the National Quilt Museum of the United States, and the Paducah School of Art, Paducah has become a nationally known cultural center. The City Commission and I are committed to making Paducah even better. We are working hard to bring new jobs to the area, revitalize more neighborhoods, and make the downtown and riverfront areas a destination for all. Everything we do is to improve the quality of life.”

As far as Extreme Makeovers go, one Paducah resident may have said it best when she stated that her city "makes you feel good to live here." More importantly, Paducah and this overall national trend demonstrate how the arts can serve as an effective catalyst in reviving a community by paving the way for a richer city, both economically and culturally.

"Over the River" and into the Legal Fray: Christo and Jeanne-Claude

Sheppard Mullin — Wed, 12 Jan 2011 05:00:48 -0800

Often critics comment on the technique, the style, the grandeur of a work of art, and the dramatic and arduous so-called “artistic process”. Rarely, do we study or observe how art is shaped by legal and environmental restrictions, community resistance, and bureaucratic red tape. However, unlike a painting where an artist makes choices based on subjective decisions, Christo and Jeanne-Claude’s latest planned installation Over the River appears more akin to the construction of a bridge or dam that is shaped by government agencies, public hearings, and environmental protests. By venturing outside of the museum and gallery space, and dipping their toe in the water, their latest project Over the River presents a fascinating case study on the intersection of government, the law, art and the environment that will have ramifications far past the intended two week installation.

Christo first announced the plans to create Over the River in 1995, when he and Jeanne-Claude were in the midst of wrapping the Reichstag in Berlin with silvery fabric and bright blue rope (a project conceived in 1971). They traveled 14,000 miles and considered 89 rivers in the Rocky Mountains before settling on the Arkansas River. This latest exercise in ephemerality seeks to suspend 5.9 miles of gleaming silver semi-translucent fabric panels high above the river, echoing the ebb and flow of the water, and interrupted only by existing bridges, trees, and rocks, with sunshine blinking through the gaps. The installation will run along a 42 mile stretch of the water, between Salida and Cañon City in south-central Colorado, which will be visible from the US Highway 50 and to rafters, canoers, and kayakers underneath.

It takes more than artistic vision to get several miles of the Arkansas River covered in metallic fabric for a two week period in the summer. It takes cutting through reams of red tape with federal, state and local officials and endless reviews of how everything from fish to grazing sheep to ambulances and trains might be affected by the temporary art installation and the thousands of people it would doubtlessly attract. Christo has invested 19 years and $7,000,000 so far in the realization of Over the River. To obtain permission for the installation, Christo applied for a land use permit from the federal Bureau of Land Management (BLM) and specifically requested a two year Environmental Impact Statement (EIS). Traditionally reserved for assessing construction such as bridges, dams or highways, an EIS is required by the National Environmental Policy Act for certain actions “significantly affecting the quality of the human environment.” In light of the complexity of the project, BLM agreed an EIS would be necessary, marking the first time since the 1969 passage of the National Environmental Policy Act, that the BLM is utilizing such a document for a work of art.

It is interesting to consider a work of art vetted not on its artistic merits, but rather on its potential social, economic, and environmental impacts. The EIS survey will access the direct, indirect, and cumulative impacts of Over the River, solicit feedback from the public, and consult with agencies and organizations with jurisdiction in the project area and special expertise with respect to the environmental issues. Christo is covering the costs associated with the EIS survey, which is being prepared by a third-party contractor selected by and under the direction of the BLM, which by law, is required to provide a completely objective analysis. At the heart of the EIS document, are a range of alternatives to the proposed development, these alternatives are then discussed at length in light of their impacts to threatened or endangered species, air and water quality impacts, social and economic impacts to local communities, and a cost analysis for each alternative, including costs to mitigate expected impacts. These alternatives are all compared against a “No Action” alternative — the baseline alternative that describes what would happen if the project is not completed. The Final EIS is scheduled for release in February of this year, with the Record of Decision to be issued in April. Then, the BLM will ultimately determine whether, where, when and under what terms and conditions a BLM land use permit will be issued to Christo for Over the River.

The most controversial aspect of the ELS survey has been the public hearing statements required by law for preparation of the document. The BLM has held hearings in the towns along the river so that locals could debate the project’s potential impact on the environment and on their use and enjoyment of their land. In fact, the Draft EIS was released for a 45-day public review and comment period, and the BLM then issued a 15-day extension to address the outpouring of comments by affected individuals. Supporters of Over the River point to the global attention for Colorado, the art world élan and prestige, and most importantly, the economic impact. (The Gates, Central Park, New York City, 1979-2005 reportedly generated an estimated $254 million in economic activity for New York City.) Supporters also point to employment opportunities for the local residents as the artists do not accept volunteer support, but rather compensate local workers for the assembly, installation, maintenance, security and removal of the work of art. The detractors in t-shirts emblazoned with “Say No to Christo” emphasize congestion and traffic along the narrow highway, danger to the natural wildlife, and most importantly the intrusion on the Arkansas River. Given the result of the artists’ first project in Colorado – in 1972, an orange curtain stretched across Rifle Gap was torn to shreds by fierce winds a mere 28 hours after its unveiling – its hard to blame Coloradans for feeling skittish about the next one.

Mark Twain famously said “Whiskey is for drinking, water is for fighting”, and although land is plentiful in this region, water has and always will be a sensitive point of conflict. Many locals live right on the water and feel protective of their river. These naysayers, the most prominent of which is Rags Over the Arkansas River, or “ROAR”, are determined to block the project. Further, many locals and environmentalists feel betrayed by the supporters of the project which include the Sierra Club, state and local politicians, the area’s artists, Chamber of Commerce officials, river outfitters and even the local ambulance company. Yet Christo’s track record in certain fundamental ways has been remarkably consistent. Initially regarded as ridiculous, his ideas have always ultimately generated a remarkable degree of local enthusiasm.

For Christo, the complications, heated debates, detractors and legal obstacles are all part of the artistic process. This is the artist who famously wrapped Paris’s Pont Neuf in golden cloth and Miami’s Biscayne Bay islands in pink, dotted Japan with blue umbrellas, and New York’s Central Park with saffron gates. It took him and Jeanne-Claude 24 years to convince the German Bundestag to allow them to wrap Berlin’s Reichstag, an effort capped by a rowdy 70-minute parliamentary debate. The Bisayne Bay installation Surrounded Islands was delayed by Christo’s own testing procedures, the need for 10 permits from government agencies, seven public hearings, and the protesting environmentalists, who were concerned about nesting ospreys and the bay’s manatees. Jeanne-Claude, recently deceased, and Christo believe that the years spent discussing, debating and imagining the art installation, ultimately make the work more important. For the artists, the detractors are themselves a part of the work of art.

Even more than the detractors, the law and its ramifications have a powerful impact on the final realization of Christo and Jeanne-Claude’s vision. Like a master draftsman, everything has been precisely planned by Christo for Over the River, panels which will be specifically installed to mimic the river’s path, sections of river that will remain uncovered, open-sky moments which are precisely planned, and in the same way Christo is meticulously planning for traffic and congestion, environment, safety, wildlife and recreation concerns. The BLM can influence the length of Over the River, the timing of the exhibition period, and the duration of the construction. For example, in response to the Draft EIS’s concern for sheep and other wildlife, the artist has committed to modifying his original design proposal to avoid placing fabric panels in prominent watering areas. While Christo remains open to environmental and legal restrictions, the artist is unwavering in his career long refusal to accept sponsorship, public subsidy, viewing fees or outside investments of any kind. Rather, through the sale of his original preparatory drawings and collages of the installation, Christo funds all costs associated with the permitting process, manufacturing, installation and removal of Over The River. This includes any costs incurred during the two-week exhibition period, ranging from additional law enforcement to trash collection.

Fiercely independent and wildly imaginative, Christo and Jeanne-Claude’s installations not only encourage the viewers to imagine the surrounding environment in a whole new way, but also to imagine the capacity of the law to affect and inform art. If realized, the 14 day installation will no doubt be a glorious tribute to the Arkansas River. In addition, Over the River will be an ode to involved constituents, administrative agencies, methodical surveys and public hearings. Either way, Christo has accomplished his goal, Over the River already exists in the mind of its supporters and detractors who have been discussing, thinking, and fantasizing about the project for years.

The Art Of Taxes: Major Changes To The Federal Transfer Tax System

Sheppard Mullin — Mon, 10 Jan 2011 04:45:18 -0800

Ars longs, vita brevis. Art is immortal, artists are mortal. Taxes impinge on every part of the art world and are a concern for both artists and collectors. Planning for and administering estates of artists and owners of art collections raises unique business management, income tax, transfer tax, and estate planning issues. Such planning often requires an interdisciplinary approach that addresses copyright law, tax and estate planning (including, but not limited to, charitable giving), business management, and knowledge of the valuation of a creative work. Substantial changes were made to the Federal estate, gift and generation-skipping transfer taxes by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "2010 Act").

As a preliminary matter, it is essential to understand that the changes made by the 2010 Act will only apply for two years – for 2011 and 2012 only. Unless Congress acts to make these changes permanent (or extends them even further), we will once again face the prospect of reverting back to the transfer tax laws that applied in 2001. Nevertheless, it is necessary to understand the new transfer tax laws and plan accordingly. Further, other matters covered by the 2010 Act – such as the extension of the "Bush income tax rates" – are not covered by this Alert.

The Increased and Newly Reunified Exemptions

Perhaps the most significant change made by the 2010 Act is the increase in the estate, gift and generation-skipping transfer tax (the “GST tax”) exemptions to $5 million. Recall that the estate and GST tax exemption was $3.5 million in 2009, and the gift tax exemption remained at $1 million. Now, all of the transfer tax exemptions are reunified and increased. This means that a person's taxable transfers will not be subject to a federal transfer tax until they cumulatively exceed $5 million (or $10 million for a married couple). This change will dramatically reduce the number of estates that will be subject to estate tax in future years. This change will also allow persons who have already used up their $1 million gift tax exemption to make additional large gifts (of up to $4 million per person and $8 million per couple) to their children, grandchildren or other donees without paying any additional gift tax.

Under the 2010 Act, the $5 million transfer tax exemption will be indexed for inflation beginning in 2012, but since these changes are set to expire at the end of 2012, this inflation adjustment is of marginal importance for now.

The increased $5 million exemption for the estate tax and GST tax is made retroactive to January 1, 2010. However, the increased $5 million exemption for the gift tax is only effective on January 1, 2011, so the current $1 million gift tax exemption will continue to apply for all gifts made in 2010. This means that it generally will make sense to defer making large taxable gifts until 2011, when the additional $4 million in exemption will be available to shelter those gifts from gift tax and the same 35% rate on gifts over the exemption amount will apply. However some generation-skipping gifts may be advantageous in 2010, as discussed below.

The Reduced Transfer Tax Rate

The 2010 Act also reduced the tax rate on all taxable transfers to 35%. Recall that the estate and GST tax rate in 2009 was 45%, though the gift tax rate was reduced to 35% in 2010 for all taxable gifts over the $1 million exemption. Now, the tax rate on all taxable transfers over the applicable exemptions will be the same flat rate of 35%.

The "Optional" Estate Tax For 2010 Estates

The estate tax was repealed in 2010, subject to a modified “carry-over” basis regime. This meant that the estate of a person dying in 2010 (a “2010 estate”) faced no estate tax, no matter the size of the estate, but the assets in the estate did not receive a new, fully stepped up basis for income tax purposes. (Under the prior law, a full step-up in income tax basis at death was provided.) Instead, estate assets could receive a partial basis adjustment of up to $1.3 million (with another $3 million of basis adjustment available for property passing to a surviving spouse, either outright or in qualifying trusts). In effect, the estate's “savings” from the estate tax repeal were offset somewhat by the "cost" of higher capital gains taxes incurred when estate assets were later sold by the estate or its beneficiaries.

The 2010 Act generally applies the new estate tax law to a 2010 estate. Thus, absent the election discussed below, (i) a 2010 estate will have the increased $5 million exemption, (ii) any estate value over the exemption will be taxable at the reduced 35% tax rate, and (iii) the 2010 estate will receive a fully stepped up basis in the estate assets for income tax purposes.

However, the 2010 Act gives a 2010 estate the option not to apply the new estate tax laws to it, as follows:

If a 2010 estate prefers NOT to be subject to the new estate tax law, the 2010 estate must make an affirmative election to “opt out” of the new estate tax law. By opting out, the 2010 estate will be choosing to be subject to the “repeal” rules – that is, no estate tax will be payable by the 2010 estate, no matter its size, but its assets will be subject to the modified carry-over basis rules. For very large 2010 estates, opting out will likely be the better choice, since the higher capital gains taxes these 2010 estates (or their heirs) will face will be much lower than the 35% estate tax they would pay, and the capital gains taxes are paid only when the assets are in fact sold, which may be many years later (if ever).
In order to “opt out” of the new estate tax laws, the executor or trustee of the 2010 estate must timely file an estate tax return and make the affirmative “opt out” election on that return. The earliest deadline for filing this estate tax return is September 19, 2011 (the first business day that is nine months after the date of enactment of the 2010 Act). The earliest due date for the carry-over basis allocation report that is due for a 2010 estate that opts out of the new estate tax law will also be September 19, 2011.
For any 2010 estate that does NOT want to opt out of the new estate tax laws, the earliest deadline to file its estate tax return and pay any estate tax that is due is also September 19, 2011. Of course, if the gross value of the 2010 estate falls below the $5 million exemption, there is no requirement for it to file the return.

The key point for executors and trustees of 2010 estates is that the new estate tax laws are the “default” rules for all 2010 estates – if the affirmative “opt out” election is not made on a timely filed estate tax return, the new estate tax laws will apply to the 2010 estate. It is critically important that the executor or trustee of any 2010 estate consult with his or her legal advisor about whether and how to make this election.

The New Portability Rules – Brave New World For Married Couples!

Under prior law, if a married person died without using up all of his or her estate tax exemption, the remaining unused exemption was simply lost. Similarly, under prior law, if a married couple wanted to fully utilize both of their estate tax exemptions, they had to do conventional “A/B” trust planning, creating an irrevocable bypass trust at the first death and funding it with the deceased spouse's assets up to the exemption amount.

The 2010 Act introduces a brand new concept that could revolutionize conventional estate planning for married couples – the concept of portability of unused exemptions for estate and gift taxes.

Under the portability rules, for deaths in 2011 or later the executor or trustee of a deceased spouse's estate can transfer to the surviving spouse all of the deceased spouse's unused estate tax exemption. (The portability rules create a brand new concept with an awkward acronym – the “deceased spousal unused exclusion amount” or DSUEA.) After the surviving spouse receives the DSUEA, the surviving spouse's estate tax exemption is now the combination of the surviving spouse's own estate tax exemption plus the DSUEA, and upon the surviving spouse's later death his or her estate will only be subject to the 35% estate tax to the extent the estate exceeds that combined exemption.

Illustration. A married couple have a community property estate worth $12 million, and they have used up none of their estate tax exemptions through lifetime gifts. The husband dies in 2011, leaving his entire estate of $6 million outright to his wife (either through a will or trust or otherwise). Because the husband's estate qualifies for the unlimited marital deduction, it uses up none of his $5 million estate tax exemption. The husband's executor transfers that $5 million of DSUEA to the surviving wife. The wife then dies in 2012, and her total estate is $12 million. Her estate's exemption is the combination of her own $5 million exemption and the $5 million of DSUEA. Thus, her estate is taxable only on $2 million, and at 35% her estate tax is $700,000. Under the old law without portability, her estate would be taxable on $7 million, and at 35% the estate tax would be $2.45 million.

In order to transfer the DSUEA to the surviving spouse, the deceased spouse's executor or trustee must timely file an estate tax return and make an election to permit the surviving spouse to use the DSUEA. Thus, even for estates that fall under the filing threshold for estate tax returns (which is the $5 million exemption amount), it will still be necessary for the estate to incur the expense of filing an estate tax return if the surviving spouse is planning to use the deceased spouse's “portable” unused exemption. If the election is not made on a timely filed return, the DSUEA is lost and more estate tax may be payable at the second death. Thus, for "smaller" estates the executor or trustee will have to consider the possible advantage gained by filing the estate tax return solely to transfer the DSUEA to the surviving spouse, at the cost of the return preparation effort and expense.

The portable DSUEA inherited by a surviving spouse can also be used for gift tax purposes by the surviving spouse. Indeed, it can even be used by the surviving spouse's new spouse upon remarriage, to shelter gifts made by the new spouse (but only if the spouse with the DSUEA allows it to be used by the new spouse). However, if a remarried spouse with DSUEA dies and her own estate does not fully use up the DSUEA, her new spouse cannot "inherit" her unused DSUEA from her earlier spouse.

On its face, portability seems to be a tremendous estate planning tool that may permit much more streamlined planning for married couples (for example, it will allow for a simple will or trust that leaves everything outright to the surviving spouse and does not create an irrevocable bypass trust at the first death). In addition, assets that are left outright to a surviving spouse will receive a second stepped up basis at the survivor’s later death.

However, portability does have certain drawbacks that the married couple must consider when creating their estate plan. Those drawbacks include:

The DSUEA is not indexed for inflation. In contrast, if assets are left in a bypass trust, the appreciation in value of the assets will not be subject to estate tax at the second death. (Remember the good old days when assets increased in value between the first and second deaths? Those good old days may return, and estate planning often benefits those who think long term.) For example, if a bypass trust is funded with $5 million at the first death, and the bypass trust grows in value to $6 million by the time of the second death, that $1 million increase in value will not be subject to the 35% estate tax. Under the DSUEA rules, the entire $6 million would be part of the surviving spouse’s estate, with only a $5 million DSUEA to shelter those assets from estate tax. The same $1 million value increase would be taxable at the survivor’s death at an estate tax cost of $350,000. (But note, the estate tax savings from using a bypass trust and sheltering future appreciation could be offset by the capital gains taxes payable on the appreciated bypass trust assets when they are sold, since the bypass trust will not get a stepped up basis at the survivor's death.)
The DSUEA can possibly be lost or reduced upon remarriage. For example, if a surviving wife (who has $5 million in DSUEA from her first husband) remarries and that new spouse dies first and his estate uses up all of his $5 million estate tax exemption (for example, by leaving his estate to his children from a prior marriage), the widow loses all of her $5 million in DSUEA from her first husband – in other words, only the “last” deceased spouse's DSUEA can be used by a surviving spouse. This rule may create some interesting new issues to be considered upon a possible remarriage, and give rise to romantic questions like “How much DSUEA will I lose, and how much more in estate taxes will my kids have to pay, if I marry you and you die first?” This could also give step-children yet another reason to resent their new step-parent!
The DSUEA cannot be used for GST tax purposes, so if a married couple wants to do "dynasty planning" to fully utilize their combined $10 million of GST tax exemption, they must still create a bypass trust at the first death to use the first spouse's $5 million of GST tax exemption.
The new portability rules, like all the other new laws in the 2010 Act, are scheduled to sunset or expire after 2012. Thus, until and unless the portability rules are made permanent by Congress, it is inherently problematic to rely on them in creating one's estate plan.

The New GST Tax Rules

Under the 2010 Act, the GST tax rate for all GST-taxable transfers made in 2010 is zero. This means that any gifts made by grandparents to grandchildren or great-grandchildren, etc., in 2010 (or any distributions made by estates of deceased persons or from dynasty trusts to the settlor's grandchildren or great-grandchildren, etc. in 2010) will not be subject to the GST tax, without having to use any of the transferor’s GST tax exemption. This “zero tax rate” rule for 2010 GST-taxable transfers is consistent, of course, with the repeal of the GST tax in 2010. However, it also helps to clarify that any gifts placed by a grandparent in 2010 into a trust or custodianship account for the benefit of a minor grandchild will not be subject to GST tax when the money later comes out of the trust or custodianship account to that grandchild. Because of the technical rules applicable to multi-generation trusts, however, if no GST exemption is allocated to the trust, the normal 35% GST tax for a transfer during 2010 is avoided only at the first generation. Thus, if a dynasty trust for grandchildren and lower generations is created and funded in 2010, future distributions from the dynasty trust at the grandchild level are free of GST tax, but future distributions at the great-grandchild (or lower) level will be subject to the 35% GST tax.

Under the 2010 Act, the increased $5 million of GST tax exemption can also be allocated to GST-taxable transfers made in 2010, for example, to protect transfers to several younger generations. If a donor wishes to avoid having the $5 million of GST exemption automatically allocated to any GST-taxable transfers made in 2010 (for example, because the donor wants to take advantage of the zero tax rate that applies to GST-taxable transfers in 2010), the donor must affirmatively elect out of the automatic allocation on a timely filed gift tax return. It is therefore very important to consult your estate planning advisor about any 2010 gifts, and whether to allocate or elect not to allocate GST exemption to those transfers. Those decisions must be made before your 2010 gift tax return is due (which is the same date your 2010 income tax return is due).

Because the “repeal” of the GST tax remains in effect for the rest of 2010, there is still a limited opportunity for clients who want to make significant generation-skipping gifts without using their $5 million of GST exemption to do so, and for the trustees of generation-skipping trusts that permit distributions to grandchildren or younger generations to make distributions to those beneficiaries this year without any GST tax. You should consult with your estate planning attorney immediately if you want to take advantage this year of the limited opportunity to make substantial gifts to grandchildren free of the GST tax.

Items Not Covered By the 2010 Act

Certain estate planning tools and techniques and other income tax rules were not changed by the 2010 Act. For example:

Valuation Discounts. The 2010 Act contains no restrictions on valuation discounts associated with gifts of closely held, non-publicly traded business interests. Indeed, with the increase in the lifetime gift tax exemption to $5 million, valuation discounts through gifts of family limited partnership or limited liability company interests offer even greater opportunities to leverage one's transfer tax exemption and transfer more wealth to the next generation.
GRATs. Grantor retained annuity trusts, or GRATs, had been slated for new restrictions which would greatly diminish their utility as a leveraging technique. The 2010 Act includes no such restrictions on GRATs. However, with the increased gift tax exemption, gifts and sales to so-called “defective grantor trusts” may now provide even greater leveraging opportunities than GRATs.
No IRA RMD Waiver For 2010. The requirement to take the “required minimum distribution” (or RMD) from a person's IRA was waived in 2009. The 2010 Act did not extend this waiver to 2010. So if you haven't yet taken your RMD for 2010 from your IRA, you must do so before year-end to avoid the 50% penalty tax.

The 2010 Act did extend to 2010 and 2011 the law allowing a direct rollover of up to $100,000 from an IRA to charity, for participants over age 70-1/2. A direct charitable rollover may satisfy the 2010 RMD requirement. Because this extension was passed so late in the year, the law allows a participant to complete the charitable rollover before January 31, 2011, and treat it as a 2010 distribution.
Roth Conversion – 2010 Action Required for 2-Year Payment Option. The ability of taxpayers to convert a traditional retirement plan to a Roth IRA, including the option to recognize the income – and pay tax – on the conversion over the two succeeding years instead of the current year, was not changed. Now that existing income tax rates have been extended through 2012, this certainty may make Roth conversions more attractive to some clients. The option to pay the tax in the two succeeding years is only available for 2010 conversions, however, so clients who are considering a Roth conversion with the 2-year payment option must act immediately.
Crummey Withdrawal Powers. Various legislative proposals have called for the disallowance of “Crummey” withdrawal powers from irrevocable trusts. Those withdrawal rights can allow donors to qualify their gifts to irrevocable trusts – such as irrevocable life insurance trusts or minors' trusts – for the gift tax annual exclusion (which is currently $13,000 per year per donee). The 2010 Act does not disallow Crummey withdrawal powers, so they remain a viable technique.

Conclusion

The 2010 Act has made many major changes to the federal transfer tax system. Some of those changes will have a dramatic effect on estate planning, especially for married couples, but the effect is somewhat muted by the temporary, two-year “life span” of the 2010 Act's changes. Sadly, planning one's estate remains somewhat in flux until Congress acts to make these changes permanent. Nevertheless, it is important to accurately consider what, if any, changes to make to your estate plans, what gift techniques you should consider implementing, and if relevant, what should be done in 2010 estate and trust administrations, in light of the dramatic changes made by the 2010 Act.

"I-Arts" Viva La Revolución Digital

Sheppard Mullin — Wed, 08 Dec 2010 10:59:20 -0800

Whether iPhone, blackberry, or droid, the smartphone has become the modern day Swiss Army knife. Now, with the help of these ubiquitous gadgets, artists, collectors and institutions are modernizing the ways in which to interact with art. With a swipe of a finger, one can bid on a work at auction; finger paint with the “brushes” app; or even quelle horreur view Mona Lisa on the Louvre’s app! While the smartphone will never (nor should it) take the place of pencils, brushes and paints entirely, digital media can be used thoughtfully to give useful shape to the art of the present. Moving forward with digitization, it is important for creative organizations to consider the key intellectual property concerns at issue when developing an iPhone app. By considering each of these issues in concert with skilled legal counsel as necessary, the art community will be well on its way to avoiding the most common and costly legal mistakes.

1) Selecting a Name for Your App is an Art

In choosing a unique and trademark-protectable name for your app, it is important to choose a name that is both non-descriptive and unlike any other trademarks currently in use. In fact, take a page from John Baldessari’s famous credo: “I will not make any more boring art.” First, while it may seem attractive to select a name that describes some aspect of the software, such names are not only less distinctive but, as a result, much more difficult to protect as trademarks. Trademark law generally does not protect words or phrases that merely describe the products they are used with – the theory is that others in the industry should have a fair chance to use such words to describe their own products. Accordingly, the law provides greater protection to names that are fanciful and distinctive. Equally important in selecting your app name and establishing your trademark rights is choosing a name that is not similar to any other trademarks currently in use.

The permissible level of similarity between one trademark and another depends on several factors. The most important factor is the similarity of the marks and the similarity of the goods or services offered in connection with each mark. Thus, once you have chosen a couple name options that fit the first criteria, the next step should be a search for potential trademark problems. As a rule of thumb, you should begin with a Google search and a look through the iTunes App Store. But your search for potential trademark problems should not end at the App Store. The US Patent and Trademark Office hosts a database of trademarks that are either registered or the subject of a pending application. Finally, make sure that the crux of your creative digital project, the digital domain name, is available for your app. Fortunately, the beneficial byproduct of a unique app name is ultimately an easier domain name to obtain. Moving forward, it is important to consult with experienced trademark attorneys who can provide thorough searching capabilities and will be able to analyze the results in terms of your legal risk profile.

2) Copyright and Moral Rights: cross your t’s and dot your i’s

When creating digital art apps for art museums, galleries and businesses, copyright considerations are paramount, since the most handsome and dynamic app will provide the viewer with the ability to flip through and engage with an extensive collection of images. Problematically, the transfer of a physical object, be it a photo negative or a painting, does not carry with it the underlying copyright. One who purchases or displays a work of art, therefore, does not gain the exclusive rights to reproduce the work or prepare derivative works based on it. Conversely, a transfer of copyright does not require a conveyance of the material object. One can own the exclusive rights to reproduce a Picasso, for instance, without ever holding the magnificent original in one’s hands. In order for the transfer of a work of art to carry the copyright within, it requires a written conveyance of the specific rights being granted. Thus, for the digital publication of art images,an express written agreement is necessary, either a transfer or a grant of license. Some institutions use a limited nonexclusive license, others try to obtain all rights when acquiring a contemporary artist’s work. To determine your rights in the digitization of images it is important to consult with a skilled attorney before going forward with development.

The copyright code also imposes a few additional hurdles and safeguards for app creators. First, by abiding by the Digital Millennium Copyright Act's "Safe Harbor" provisions, app creators can minimize their exposure to liability for the actions of their users (this is particularly relevant when users can upload content of their own via the app). Next, the Visual Artist's Right of Attribution and Integrity or "VARA" protects visual artists by providing them with the right to claim authorship of their work and to obtain damages if their work is distorted or modified in such a way that would be prejudicial to the artist’s honor or reputation. VARA may pose a challenge for app creators because a misattributed piece of artwork or a distorted online image could potentially violate the visual artist's rights. For example, John Baldessari, who will turn 80 next year, recently debuted an iPhone app riffing off of Abraham van Beyeren’s oil Banquet Still Life at his retrospective at the Los Angeles Museum of Contemporary Art (LACMA). Reminiscent of traditional still-life painting exercises, the engaging app allows you to re-arrange and move gleaming lobsters, oysters and assorted fruits without lifting a brush. In this situation, lets say that Van Beyeren had transferred the ownership of the work and the copyright to LACMA—would moral rights be transferred as well? No, it does not matter that the artist is not the copyright proprietor, the rights of attribution and integrity are personal to the artist and separate from the economic rights of copyright.

Whether or not an artist’s moral rights will be violated by your app will depend largely on its functionality. While digitally shrinking an image for your app may not violate the visual artist’s rights, rearranging the subject matter as seen above in Banquet Still Life, very well could be a VARA violation. Regardless, a prudent art app developer will make sure to obtain a signed waiver by the artist specifying the identity of the work and the uses to which the waiver applies. Again, whether either of these aspects of copyright law apply to your app will depend largely on its digital permutations and you should make sure to consult with skilled intellectual property counsel every step of the design and testing process.

3) Follow Apple’s rules

Apple's App Store is the gold standard for successful distribution of an art app. Thus, you should make sure your app meets the requirements for inclusion in Apple's store and accordingly, utilize and agree to the terms of Apple’s legal agreement governing such use. For the first time Apple has published detailed guidelines for its app review process, which are invaluable, in addition Apple’s terms for using the iPhone Software Developer Kit as well as for participating in the App Store and all other services required to build apps, are contained in the iPhone Developer Program License Agreement. A few key issues to be aware of: privacy rights, location based services, and objectionable content. Privacy laws prevent the dissemination of user data and information to third parties. All apps that require user’s personal information, for example, to perhaps purchase items from a museum store or to bid using an auction app, must comply with all applicable privacy and data collection laws, this includes state, federal and international laws. If your program uses location, identity or other data, it is necessary to review the laws that may apply to your app. In some cases it will be necessary to inform users prior to purchase of the use of their information in connection with the app. As for objectionable content, Apple prohibits apps that are violent, pornographic, or “defamatory, offensive or mean-spirited.” Apple perhaps puts it best in the recently released App Store Guidelines, “We will reject Apps for any content or behavior that we believe is over the line. What line, you ask? Well as a Supreme Court Justice once said, ‘I’ll know it when I see it’. And we think that you will also know it when you cross it.” Creativity and innovation are key touchstones in developing your app, but failing to comply with Apple’s rules will mean significant delays or possibly outright denial of your app. This article only provides a snap shot, thus please take the time to review the guidelines and license agreement in depth.

4) Protecting your app

Once your app is created, you should protect your work against misappropriation or infringement by others. In the United States, copyright ownership is automatically obtained upon the physical creation of a copyrightable work–writing a manual, saving a text file containing a code, recording a musical composition, or drawing a sketch on paper are all acts that give rise to ownership of copyright.

However, in order to assert your copyright against an alleged infringer in court, you must first register your copyright. While it is possible to obtain an expedited registration in the eleventh hour before filing a lawsuit, the process is quite expensive and certain rights maybe lost if you do not have a registration in hand prior to the occurrence of an alleged infringement. Thus, it is highly recommended that you obtain a copyright registration for the app. Further, as the app matures and new developments and features are added, any significant updates to the software should be the subject of new registration.

At the end of the day, La Revolución Digital has begun with a vengeance. In fact, the Piere Bergé—Yves Saint Laurent Foundation in Paris recently debuted a show of “iHockneys” by the prolific artist who has embraced the medium, so keen is his illusion of handling actual pigments while yielding the Brushes app, he sometimes reflexively “wipes” off his thumb on his clothing. Technology presents an innovative platform to connect with the public, advance your institution's "brand" identity, and attract and engage a new audience.

We Are Living in an Immaterial World

Sheppard Mullin — Fri, 12 Nov 2010 06:46:54 -0800

The Museum of Modern's Art (MoMA) recently announced its ‘acquisition’ of the typographic ‘@’ symbol. This unprecedented move marks a significant step into the unexplored realm of ‘acquiring’ non-physical objects.

As bloggers, critics, and fans erupt, many question the artistic merits and legal logistics of the conveyance, the museum’s only “free” acquisition. In order to acquire the ‘@’ symbol, MoMA's Senior Curator Paola Antonelli went through the standard acquisitions processes internally within the museum, including pitching the idea to the museum’s Design and Acquisition Committee and researching the symbol’s long and storied history. The next standard step in the acquisition process would have been for MoMA to contact the owner of the objet d’art to begin negotiations for the terms of sale. However, ‘@’ is a non-object existing in the public domain. Like the English language or Einstein’s E = MC², the "public domain" refers to works, ideas and information which are intangible to private ownership and/or which are available for use by all members of the public. Therefore, ‘@’ is not covered by intellectual property rights at all. Look down at your keyboard, we all use ‘@’ and we all own it—or conversely no one owns it. Thereby, MoMA cannot acquire or obtain any property rights or copyright privileges to the symbol. There is no need for a written contract, a sale price, or a discussion of any of the main deal points including without limitation: promotion, framing, insurance, storage or crating and shipping. MoMA’s ‘acquisition’ (we really can’t write that without quotation marks) is complete and all deal points ‘negotiated.’ MoMA can now proudly display the ‘@’ non-object in its hallowed halls in between Picasso’s paintings and Serra’s sculptures.

Traditionally, museums are defined by their acquisitions. For example, the identity of the Huntington Library is inextricably linked with its most famous acquisition Thomas Gainborough’s Blue Boy. Comparatively, Leonardo Da Vinci’s Mona Lisa is so much a part of the Louvre’s canonical image, that one cannot imagine one without the other. Where museums toed this boundary of museological identity with conceptual, performance, and installation art—MoMA has now cannon balled headfirst into the water. MoMA is challenging the traditional and logical assumption that it is impossible to own something that is both "free" and physically "non-existent". In fact, this latest acquisition will be displayed in different typefaces as if the font, like oil paints, are the materials that ‘@’ is made of. Potentially, MoMA's actions can even launch a new trend of acquiring intangible objects. (Watch out ‘&’ ampersand!)

MoMA's acquisition may seem unprecedented, commentators are likening the ‘@’ acquisition to the predominance of new media in art, in which online works are immaterial and freely accessible to all. Similarly capturing the trend of intangible, untraditional works of art, New York's New Museum recently launched the exhibition titled "Free", a show exploring the Internet as a public art space. The exhibit utilizes open-source curating and presents art that engages with the Internet existing both online and on free standing platforms. The philosophy of free culture and open sharing grounds the exhibit, which includes sculptures made of objects found on eBay as well as collages of web-based images. These developments illustrate the importance of extending the concepts of art beyond the traditional physical object. Acquiring '@' has potential implications not only for the fields of intellectual property and copyright law, but also has the capability to affect the standard acquisition processes museums routinely administer when adding to their collections. After all, because MoMA cannot claim any property rights to the symbol, potentially any other museum is free to also acquire '@' as part of its own collection.

While some question whether the acquisition of ‘@’ was even necessary, others are also skeptical about whether the symbol is of a quality to warrant being featured in a museum. Critics also wonder what will come next and how far immaterial acquisitions will extend, claiming MoMA is launching a slippery slope. Is this potentially the boldest acquisition in history or simply more hot air accompanying modern art? Despite the concerns and the questions, MoMA sees the ‘@’ acquisition as a "design of extraordinary elegance and economy." In fact, ‘@’ has both a long and changing history—originating as early as the 15^th century when medieval monks used the symbol to mean "ad" (Latin for "to" or "toward") in written manuscripts. The symbol emerged again during the Renaissance, as traders also used the symbol to mean "amphora"—which is a unit of measurement and a word to describe a ceramic vessel.

In 1885, in its modern incarnation ‘@’ appeared on the American Underwood typewriter. American engineer Ray Tomlinson would take the ‘@’ symbol one step further. In 1967, developing an internet network for the company BBN, Tomlinson created what today is universally known as e-mail. Launching ‘@’ into an international icon, Tomlinson decided to use the ‘@’ symbol to designate a specific user "at" (@) a specific host computer. Today, ‘@’ continues to be ubiquitously used to define individual's online internet identities, especially with the rise of social networking websites. For instance, ‘@’ is fundamental to communication via Twitter, as users can only communicate directly with others by placing the ‘@’ symbol before the username, (for instance, MoMA's twitter address is @museummodernart). MoMA believed the ‘@’ symbol's diverse and changing history merited the museum's recognition of it as part of its collection.

MoMA's acquiring '@' reflects society's mandate to push artistic boundaries beyond the ordinary and the tangible. Perhaps the ‘acquisition’ is best summarized by MoMA’s senior curator of design, Pauolo Antonelli, “Why should we be stopped by the laws of physics?”

Some Artists Paint Buildings

Sheppard Mullin — Mon, 01 Nov 2010 10:13:54 -0800

Like it or not, "street art" is becoming a mainstream phenomenon in America. Due in part to the high profile of artists like Shepard Fairey and Banksy, and the pioneering philosophy of museum directors like MoCA's Jeffrey Deitch—who has planned a large-scale street art show for 2011—what was once considered urban blight is now being recognized as a legitimate artistic medium.

While the basic legal issues facing street artists are relatively straightforward—painting a building/sign you don't own can lead to civil and criminal liability—the more nuanced legal issues concern copyright and ownership. If Banksy does this to my warehouse, can I sell my wall to a museum? Can I make T-shirts or take photos? Can I paint over it? While these types of questions are probably anathema to most street artists, they are great food-for-thought for those on art's "business side" and, most of all, us lawyers.

Copyright Basics:

Copyright protects "original works of authorship fixed in any tangible medium of expression." This means that, while ideas are not protectable, their physical manifestation probably is. Thus, the idea of painting a Cro-Magnon man with a tray of fast food cannot be protected by copyright (although it is quite clever). Any other artist could take the same underlying idea and turn it into a unique and copyrightable expression of his own. Indeed under copyright law, only the image itself is protectable—the physical manifestation of the idea. Through stencils, sketches, and the final "graffiti" image, the street artist fixes his creative expression "in a tangible medium;" thus, earning the artist the protections afforded by copyright law.

Rights of Copyright Holders:

Once an image is "fixed in a tangible medium of expression," the creator of the work enjoys the exclusive right to make and distribute copies, to display the work publicly, and to make derivative works (subsequent copyrightable creations based on the original work). Thus, Banksy is the only one who can make and distribute copies of his Cro-Magnon design, utilize the design on t-shirts or other goods, or choose to display a painting of that design in a museum. However, this bundle of exclusive rights is limited by the "First-Sale Doctrine," wherein one who is the rightful holder of a lawful copy of the copyrighted work has the right to lawfully sell, lend, trade, or give away his or her copy (with some limitations).

At a basic level, the street artist is the sole holder of the copyright to his creations; however, if a piece is painted onto a building owned by another, the building owner is the rightful holder of that particular "copy" of the work. Therefore, the building owner could, hypothetically, cut out the wall on which the art was placed and sell or lend it. Recently, executives from Amazon were reported to have done exactly this—removing graffiti paintings from the side of their Seattle offices before it was torn down and then reinstalling them in their new corporate headquarters, which was built on the same site.

A building owner cannot, however, begin making t-shirts and mugs with the Cro-Magnon design because doing so would constitute the creation of unlawful derivative works or copies—the building owner is no longer using the wall but, instead, is using the art itself. Similarly, a photographer could not legally photograph the Cro-Magnon man with a tray and then proceed to sell them for pecuniary gain. Capturing the painting in photographs is also a copy or derivative—even if the photographer uses substantial creativity in framing and lighting the piece. In the past few years, there have been numerous instances in which photographic compilations of murals and graffiti art have led to graffiti artists seeking a share of profits. CanTwo, a prominent German graffiti artist, even found one of his cartoon-style characters used without permission on the Spanish synchronized swim team's bathing suits. In fact, the building owner might also be prevented from webstreaming or capturing the art on videotape—perhaps nobody knows this better than the production attorneys for shows like "Law & Order," who frequently work with New York City's street art community to obtain clearances for murals appearing in background shots.

On the other hand, the street artist may not want to demand credit for his work nor trouble himself with copyright and compensation. As Banksy himself once dismissively stated: "copyright is for losers." In fact, making such a demand could expose the artist to civil and criminal liability for vandalism, trespassing, and a host of other potential violations. If artists never takes credit for their work, however, they may miss out on some copyright protections and may inadvertently decrease the duration of their copyrights.

Copyright Duration:

For works created on or after January 1, 1978, if an artist creates a work under a pseudonym (for example, calling oneself "Futura" instead of signing your work with your actual name) or creates a work anonymously, the copyrights in that work only lasts for the lesser of 95 years from first publication or 120 years from the year of its creation.  However, if an artist's identity is revealed in the registration records of the Copyright Office (including in any other registrations made prior to the expiration of the copyright term), then the term will last for either (a) the life of the author plus 70 years; or (b) in the case of a work made by more than one person, for the life of the last surviving author plus 70 years. Thus, an unattributed work will usually lapse into the public domain much sooner than an attributed work.

Visual Artist's Right of Attribution and Integrity:

Thus far, we have established that a building owner can sell his or her wall to a museum but cannot make t-shirts or sell photos of the art. Still remaining is the question of whether a building owner may paint over a given work of street art. The standard provisions of copyright law only prevent people from violating the copyright holder's exclusive rights—distribution, copying, and derivatives. Thus, the copyright holder would typically be powerless to stop the destruction of his or her work; however, if the work is of "recognized stature," the artist may be able to prevent its destruction by exercising his moral rights under the Visual Artist's Right of Attribution and Integrity ("VARA").

VARA grants the author of a "work of visual art" the right to prevent the destruction of a work of "recognized stature." Upon passing VARA in 1990, Congress instructed courts to use common sense and generally accepted standards of the artistic community in determining whether a particular work falls within the scope of the definition [of a 'work of visual art'], and explicitly stated that "whether a particular work falls within the definition should not depend on the medium or materials used." Thus, a work of art painted or sprayed onto a wall should still fall within this definition.

To determine whether a work is of "recognized stature," courts typically apply a two-part test: (1) the work is viewed as meritorious and (2) this stature is recognized by art experts, other members of the artistic community, or some other cross-section of society. To satisfy this test, the artist will probably have to rely on expert witnesses; however, a long-existing work with some importance to the community should be sufficient.

Assuming that a mural or piece of street art is shown to be of "recognized stature," destruction thereof can lead to substantial liability. In 2008, Kent Twitchell (an American muralist) settled a case under VARA and California's Art Preservation Act (CAPA), in which he was awarded approximately $1,100,000 for the destruction of his 70-foot-tall landmark mural of the iconic L.A. artist Ed Ruscha.

However, even if all the VARA elements are met, courts may still deny relief to artists who have illegally placed their works on property. While this proposition has seldom been addressed, the 1997 ruling in English v. BFC&R East 11^th St., LLC., 1997 WL 746444 [S.D.N.Y. 1997]) set a difficult precedent for illegal street artists. In the case, a group of sculptors had illegally placed various works of art within a community garden (a city-owned lot). Upon hearing that the lot had been sold for development, the artists attempted to use VARA to stop the sale and subsequent destruction of the garden. In denying the VARA motion, a New York court found that VARA did not apply to art that has been illegally placed on the property of another without the owner's consent when that artwork cannot be removed from the site in question. While subsequent cases in New York seem to have moved away from this precedent, it seems likely that future street artists would have difficulty utilizing VARA to prevent the destruction of illegally placed artwork.

Conclusion:

Ultimately, while copyright grants street artists the ability to control the copying and distribution of some of their work, artists who illegally paint the property of another are probably without a means of stopping the destruction, removal, or transfer of that particular manifestation.   As a result, public pressure rather than copyright law is probably the best means of protecting such work—if the work is truly special, of recognized stature, or widely appreciated by members of the community, then coordinated action from local citizens may be the only way to save it.

Even with the growing recognition of street art, illegally placed artwork is subject to the wishes of the landowner. While this legal reality makes sense from a policy perspective (we probably shouldn't allow great artists to go around hijacking privately-owned buildings), it has also led to the destruction of many important works of art.

On the other hand, the constant painting-over, hacking or alteration by other graffiti artists, and the ever-changing urban landscape of cities like Los Angeles and New York helps to drive street art forward. While such art can legally be commoditized, it is inherently impermanent. Perhaps today's street artists owe thanks—the laws that constrain the medium also force it to adapt and evolve. Besides, copyright is for losers.