Art Law Gallery

Fine Art Prints in California: Having the Right Paper Matters

Sheppard Mullin — Thu, 07 Jan 2010 05:43:42 -0800

In recent years, the production of multiples from an original work of art, especially fine art prints, has become a major business in the art world. What distinguishes a mere poster from a valuable, collectible, fine art print, is usually the scarcity and quality of the work in question. In other words, prints that are produced using high quality materials, hand signed by the artist, and sold in a limited edition are likely to be more collectible (and thus have higher resale values) than posters that are produced using low quality, inexpensive materials, unsigned by the artist, and ubiquitous.

In an effort to enable prospective purchasers to make informed decisions as to the value of a fine art print, many states, including California, have adopted statues that require disclosure of certain information prior to the sale of a fine art print. For example, the California Fine Prints Act, also known as the Farr Act (Cal. Civ. Code §1740 et seq., available at http://www.leginfo.ca.gov/cgi-bin/calawquery?codesection=civ&codebody=&hits=20), is a consumer protection statute that applies to art multiples, including fine art prints, that are offered or sold by art dealers for one hundred dollars or more, exclusive of any frame.

The term "art dealer" is defined under the Farr Act as a person who is in the business of dealing exclusively or non-exclusively in fine art multiples, including an auctioneer, or who is holding himself or herself out as having such knowledge or skill. Among other things, the Farr Act requires art dealers who sell, offer to sell, or consign fine art prints in or from California, to furnish to the buyer or consignee a certificate of authenticity of such print prior to the sale or consignment. To the extent that an art dealer is distributing catalogues, flyers or other advertising material that constitute an offer to effect a direct sale of a specific fine print, a certificate of authenticity for the print must be disclosed in "close physical proximity" to the description of the print.

The certificate of authenticity is a document that provides the prospective buyer or consignee of a fine art print with information that is likely to have a material effect on such print’s value and collectibility, and generally includes the following: the title of the print, the artist's name, whether the artist signed the print, the manner in which the artist signed the print (e.g. signature from stone engraving versus signature in pencil), whether the print is being offered as a limited edition, whether or not there is more than one edition or limited edition of the print, the number of prints produced in each such edition, and a description of the process and material used in producing the print. If certain legally-required disclosures for a particular fine art print are not known, the Farr Act permits the art dealer to include a disclaimer on the certificate of authenticity. However, in order to be effective, the disclaimer to a particular piece of material information must be clearly, specifically and categorically stated within the physical context of the other information disclosed in the certificate of authenticity.

Under the Farr Act, if an art dealer offers or sells a fine art print without furnishing the buyer with a certificate of authenticity, or if the certificate provides information which is mistaken, erroneous or untrue, the art dealer is liable to the purchaser under a standard of strict liability. Specifically, the art dealer's liability is equal to the purchase price of the fine art print plus the legal interest rate thereon, provided that the purchaser returns the print to the dealer in its original condition. Furthermore, if the purchaser establishes that the art dealer willfully violated the requirements of the Farr Act, the art dealer may be held liable for treble damages.

Any art dealer who violates the Farr Act by providing a prospective buyer with false or misleading information on the certificate of authenticity for a fine art print is also likely to be in violation of California’s unfair competition law (Cal. Bus. & Prof. Code §17500 et seq., available at http://www.leginfo.ca.gov/cgi-bin/calawquery?codesection=bpc&codebody=&hits=20), which prohibits unlawful, unfair and fraudulent business acts or practices, as well as deceptive advertising. Indeed, in California it is unlawful to engage in deceptive, false and misleading advertising in connection with the sale or disposition of real or personal property or services and any person, firm, corporation or association damaged may bring an action to obtain an injunction to stop unfair, unlawful, or fraudulent business practices and false advertising, and to obtain restitution for money lost or gained by the defendants as a result of the wrongful conduct. In situations involving defective certificates, an aggrieved purchaser might also seek redress from an art dealer under California common law actions for fraud and/or breach of an express warranty. Under federal law, such a purchaser might also seek to hold a deceptive art dealer liable for damages under 15 U.S.C. § 1125(a) of the Lanham Act, which imposes liability on a party for false advertising either as the result of per se or de facto falsity where the advertising has the likelihood of causing confusion or misleading a customer.

Although the Farr Act was passed into law almost forty years ago, many art dealers remain unaware of its disclosure requirements and the potential liabilities associated therewith. Accordingly, when considering the sale or consignment of a fine art print, art dealers, galleries and auction houses should not only ascertain the quality and marketability of a fine art print, but also consult an attorney to verify that each such print is accompanied by a proper and accurate certificate of authenticity in conformity with applicable state and/or federal law.

Possessing Peace of Mind

Sheppard Mullin — Mon, 07 Dec 2009 11:12:46 -0800

Art title insurance addresses one of the most pressing issues facing the art world. The application and underwriting process is timely, straightforward and efficient: the auction house conducts its research, ARIS conducts an independent review, the client is quoted the premium cost, and the policy is issued in favor of the seller, the buyer or both. Title insurance increases the liquidity and value of art in the marketplace because policies eliminate doubt and exposure to title claims.

To read the full article click here.

Posted with permission from ARIS Corporation.

Court Says Don't Rely on Fortune Cookie for Art Valuation

Sheppard Mullin — Fri, 20 Nov 2009 05:15:46 -0800

Beware of "fortune cookies" for advice, even when it's not the kind you crack, read, and eat. Just ask Najung Seung, who claims that Mary Dinaburg, a partner at gallery Fortune Cookie Projects, duped her into buying a Julian Schnabel painting entitled Chinkzee for a price three times its market value. Initially, Seung paid Dinaburg $118,000 for a John Wesley painting entitled Bulls and Bed, only to discover that Dinaburg had sold the painting to someone else. Rather than returning the payment, Dinaburg offered Seung a $200,000 credit towards the purchase of Chinkzee at the "gallery" price of $380,000, and further represented the painting was worth at least $500,000. But Seung soon learned that Chinkzee had been sold months earlier at an auction for $156,000 based on an estimate price range of only $60,000 to $80,000, and that the market value was no more than $110,000. As a result, Seung filed suit against Fortune Cookie Projects, seeking the return of her money based on fraud, negligent misrepresentation, promissory estoppel, and unjust enrichment.

The New York Supreme Court said tough luck in Seung v. Fortune Cookie Projects (No. 600537/09; 10/22/09) and dismissed all four claims. Notably, the court explained that art dealers generally do not have special relationships with buyers. Unlike a lawyer, the ordinary art dealer does not have formal training and expertise that may instill a special relationship of confidence and trust with her client. Rather, the relationship between seller and buyer is simply an "arm's length business relationship." Given this context, the court dismissed the fraud claim because Seung's "blind reliance" on Dinaburg's statements as to the painting's value was "not reasonable as a matter of law." Seung, the court advised, should have considered Dinaburg's representations as mere opinion or "puffery," and should have taken independent action to obtain her own appraisal. Accordingly, it was the court's belief that Seung's "failure to proceed with diligence or to exercise caution with respect to a business transaction" should not relieve her of the potential consequences of her actions.

The court also dismissed Seung's claim for negligent misrepresentation because she did not offer facts showing that Dinaburg possessed unique or specialized expertise in the valuation of contemporary art beyond that typical of any dealer in the field. While Seung offered "persuasive authority" urging that art dealers automatically fall within a category supporting a negligent misrepresentation claim, the court countered that allegations of superior knowledge or expertise in the art field are "per se insufficient to establish existence of a fiduciary duty." Additionally, the court clarified that "vague allegations of general expertise" are not enough to support a special relationship, and dismissed the claim for negligent misrepresentation because the underlying relationship of trust and confidence required in such a claim was absent.

Next, the court dismissed the claim for promissory estoppel and agreed with the defendant's assertion that Dinaburg made no promises; at most, she made statements concerning Chinkzee's value. And even if such statements may be viewed as promises, the court posited that Seung could not have reasonably relied on them considering she made no effort to independently ascertain the painting's value.

Finally, in terms of unjust enrichment, the Court referred to Mandarin Trading Ltd. v. Wildenstein to justify dismissal of such claim. In Mandarin, the plaintiff relied on an appraisal letter by the defendant estimating the value of an 1892 Paul Gauguin painting entitled Paysage aux Trois Arbres at between $15 and $17 million, although the painting obtained a high bid of only $9 million at an auction two months shortly thereafter. Apparently, the defendant held an ownership interest in Paysage aux Trois Arbres, and issued an inflated appraisal for its own benefit. Still, the Mandarin court rejected the plaintiffs claim for unjust enrichment, particularly because the plaintiff could have obtained its own appraisal. Applying such reasoning to the present case yielded the same result: Seung could not show enrichment is unjust if she could have, but did not, seek independent appraisal. Citing Mandarin, the court further noted that Seung cannot use unjust enrichment as a "back door to recovery" based upon reliance on Dinaburg's appraisal, when it was not entitled to rely upon her appraisal in the first place.

According to the court, a sale of art is like any other business transaction. Buyers should never blindly rely on sellers without seeking independent advice. Perhaps this way, a bad appraisal may still result in good fortune.

Harvard Journal of Sports and Entertainment Law -- Call for Papers

Sheppard Mullin — Wed, 28 Oct 2009 06:00:32 -0800

Harvard Law School recently announced the formation of the Harvard Journal of Sports and Entertainment Law (“JSEL”). JSEL will provide the academic community, the sports and entertainment industries, and the broader legal profession with scholarly analysis and research related to the legal aspects of the sports and entertainment communities.

JSEL, published under the auspices of Harvard Law School, is accepting articles, essays, book reviews, notes, and comments regarding legal and/or public policy issues from academics and legal practitioners for its upcoming inaugural issue in Spring 2010. JSEL is one of the few journals in the United States that focuses exclusively on legal topics related to sports and entertainment.

Submissions to JSEL are being accepted on a rolling basis. To be considered for JSEL’s first issue, due to be published in Spring 2010, please send completed submissions no later than November 15, 2009. An indication of your interest before that date would also be greatly appreciated.

All submissions to JSEL should be sent to Josh Podoll, Submissions Editor, as an attached Microsoft Word document via email to jselsubmissions@gmail.com. Please visit JSEL’s website for further details regarding the submissions process at www.HarvardJSEL.com. Also, please feel free to contact Mr. Podoll with any questions you may have concerning citation format, topic, or other issues involving the submissions process. Finally, if you know of other scholars, practitioners, or students whose work seems appropriate for our journal, please encourage them to submit their work to JSEL.

The European Droit de Suite - An EU Effort to Strengthen the US Contemporary Arts Market?

Sheppard Mullin — Wed, 28 Oct 2009 05:58:16 -0800

In 2001, the European Parliament passed Directive 2001/84/EG, which requires all EU Member States to incorporate a so called “Droit de Suite” into their respective national copyright law codes by December 31, 2009. A key goal of the Directive is to eliminate competitive barriers that existed in the contemporary and modern art market between Member States whose respective copyright laws had codified Droit de Suite decades ago (e.g.. France and Germany), and Member States whose respective copyright laws were silent on the principle (e.g. Great Britain, Austria, and the Netherlands).

Once implemented, the EU-wide Droit de Suite will cover original artwork, including paintings, sculptures, drawings and photographs that sell for more than €3,000 in a Member State for the full duration of the artwork’s copyright (i.e. the life of the artist plus seventy years). Upon the sale of any piece of art that falls under the scope of Droit de Suite, the artist of such artwork will be entitled to receive the following compensation (with a ceiling of €12,500 for each piece of art per sale): (i) 4% of the sales price of the artwork up to €50,000; (ii) 3% of the sales price of the artwork up to €200,000, (iii) 1% of the sales price of the artwork up to €350,000; (iv) 0.5% of the sales price of the artwork up to €500,000 and; and (v) 0.25% of the sales price of the artwork in excess of €500,000.

The implementation of a Droit de Suite in the EU is likely to lead to a new paradigm in the European market for modern and contemporary art. The absence of a Droit de Suite in Great Britain had been one of several key factors that not only made London a hub of the European market for modern and contemporary art, but also made British auction houses among the most profitable in the world. It therefore follows that an EU wide Droit de Suite is likely to displace the European market for modern and contemporary art to jurisdictions such as Switzerland and the United States whose copyright laws do not recognize Droit de Suite. Indeed, the wake of the European Parliament passing Directive 2001/84/EG, the sales figures for auction houses in Great Britain, the Netherlands, and Austria dropped significantly, whereas the Zurich branch of the Christies now accounts for more than 40% of the group’s European turnover. This sudden shift of business can only be explained by the implementation of the Droit de Suite, which first and foremost means higher prices for modern and contemporary art and higher administration costs for auction houses.

In implementing an EU-wide Droit de Suite, the European Parliament also sought for contemporary artists to participate, along with collectors, auction houses, and galleries, in the financial gains associated with the resale of their works of art. The magnitude of the secondary market for contemporary and modern art is well illustrated by following the sales of Picasso’s artwork from 1989 – 1999. During this period, the worldwide value of Picasso works sold at auction amounts to approximately $500 million. If all such sales had taken place in jurisdictions recognizing a Droit de Suite similar to that of Directive 2001/84/EG, the heirs of Picasso would have realized a profit of approximately $25 million. According to the European Parliament, a Droit de Suite would not only benefit the Picassos, Miros and Klees of the world, but also lesser known artists. Indeed, it is commonplace for young, relatively unknown and inexperienced artists to sell their artworks quite cheaply at the beginning of their career. By implementing an EU-wide Droit de Suite, such artists (or their heirs) would benefit years later if the original (or subsequent) owners of their works profited from selling them in the open market.

However, renowned European artists such as Gerhard Richter and Georg Baselitz have voiced concerns that only the most famous artists (e.g. Picasso, Miro, Klee, etc.) and their heirs will ultimately benefit from the implementation of the Droit de Suite and that implementation of Directive 2001/84/EG will present additional obstacles for already-struggling young artists. Indeed, the works of young artists are generally sold in small art galleries and not in big auction houses. Since the Droit de Suite is likely to lead to higher prices for modern and contemporary art, it follows that it will become increasingly more challenging for young artists to sell their works at all. Accordingly, art galleries in Member States are likely to experience a decline in profitability and may even be tempted to relocate to jurisdictions that do not recognize a Droit de Suite. Perhaps then, in this time of economic uncertainty and financial crises, the EU Droit de Suite will prove to be nothing more than an unintended stimulus plan for the US and Swiss contemporary and modern art markets.

Authored by:

Dr. Benjamin Vollrath, LL.M.
Noerr Stiefenhofer Lutz

Does Finders-Keepers Bring Piracy to New Depths?

Sheppard Mullin — Tue, 25 Aug 2009 05:29:06 -0800

For over 200 years, $500 million in gold and silver cargo sat undisturbed on a seabed off the coast of Portugal. Then, in May of 2007, Florida-based Odyssey Marine Exploration announced the discovery of a vast treasure at an undisclosed location it called "the Black Swan." Within weeks, Spanish officials identified the Swan as the Spanish colonial-era galleon "Nuestra Señora de las Mercedes," declared her treasure to be the rightful property of the Spanish people, and demanded that Odyssey reveal its secret location. Now, two centuries after British cannon fire left the Mercedes "breaking like an egg, dumping her yolk into the deep," the Spanish warship has found herself at the center of another battle—exposing the fragile relationship between maritime law and cultural heritage protections.

The Spanish government argued that the ship and her contents were the "inalienable historical heritage and patrimony of Spain." Spanish newspapers labeled Odyssey Marine "modern-day pirates." In 2007, Spanish authorities even barricaded one of Odyssey's salvage vessels in port and confiscated its computer equipment and maps. Yet, Odyssey Marine may have held the stronger legal claim to the Mercedes and her treasure. In addressing this issue and granting the Mercedes her final repose, the court needed to determine whether the law of salvage or the law of finds applied to historical and culturally significant wrecks.

As explained by the Fourth Circuit, the law of salvage and the law of finds promote different actions and are designed for different purposes. R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel, 435 F.3d 521, 31 (4th Cir. 2006). The law of salvage is designed to present potential salvors with incentives to render voluntary aid to people and property distressed at sea. See, id. Under the doctrine, salvors are granted a maritime lien but the true owner is not divested of the property. See, id. Thus, under the law of salvage, Odyssey Marine would have been entitled to a significant reward as salvor-in-possession of the Mercedes, while the Spanish government would have retained ultimate legal title.

In contrast, the law of finds (the finders-keepers rule) grants the finder absolute legal title to a long-lost or abandoned shipwreck. Id. at 532. Courts have traditionally disfavored this doctrine, presuming that title remains with the true owner when property is lost at sea (unless the items are "recovered from ancient shipwrecks and no owner appears in court to claim them"). Id. Courts have been reluctant to freely apply the law of finds for fear that "individuals who come upon a distressed ship on the high seas would be encouraged to refrain from attempting to save it and to entertain the idea of taking the valuable cargo for himself as a finder." Id. at 533. The Fourth Circuit even described a finders-keepers policy as "but a short step from active piracy and pillaging." Id.

Were the court to apply the law of finds and hold in favor of Odyssey, the company would take absolute title to the $500 million in sunken treasure while the Spanish government would get the short end of the plank. Yet, even with absolute title, Spanish authorities could still frustrate Odyssey's claims to the treasure. Unless Odyssey's ships were to set sail back to America with the wreck and its entire $500 million plunder in tow, the company would only be able to ask U.S. courts to exercise constructive in rem jurisdiction. A ruling under constructive in rem jurisdiction is essentially a decree, and only enforceable if recognized by other nations. As a result, foreign nations are unlikely to accept an unfavorable constructive in rem decision. Since the law governing cultural heritage and historical wrecks remains unsettled, it is highly unlikely that Spanish authorities would accept a constructive in rem ruling in favor of Odyssey.

Despite the Fourth Circuit's strong condemnation of such a policy, finders-keepers may be more applicable in the current case and may advance some redeeming policy implications. The traditional definition of "abandoned" vessels are those which have been left for a long time and whose owner has not attempted to reclaim it or begin salvage operations. While Spain may point to its oceanic exploration program as evidence of "attempts to reclaim," the Mercedes was lost for over 200 years and could reasonably be considered to be abandoned property. Additionally, Odyssey might advance the policy argument that private citizens are less likely to search for treasure if they are not entitled to legal ownership thereof. With decreased private exploration, there would be less likelihood of discovering historical or cultural items.

On the other hand, rampant exploration can cause serious harm to the oceanic environment and valuable artifacts. For example, in United States v. Fisher, a treasure-hunting company was found to have created over 600 holes, some as large as 30 feet across, in the Florida Keys National Marine Sanctuary. Although the explorations had uncovered over 200 artifacts, the Eleventh Circuit found the company liable for destroying seagrass and historic sanctuary reserves. Overzealous exploration can also lead to destruction of valuable art or antiquities through improper handling, as has recently become the case with the South China Sea's dao bao zhe or "loot treasure people," gangs of ex-fishermen who now search for valuable porcelain and sell them in Beijing's many antique markets.

Ultimately, while the techniques and technology required for major treasure salvage are uniquely modern, the laws on which such cases rely are antiquated, difficult to apply, and not guided by established custom or international decree. From the Florida Keys to the South China Sea, modern technology has allowed a new wave of treasure-hunters to explore the deep. While such explorations may embolden arts and antiquities markets across the globe, their legal status remains murky.

Fairey's Use

Sheppard Mullin — Fri, 05 Jun 2009 13:25:22 -0800

Last year's Presidential election was historic on many accounts. Both campaigns saw an unprecedented turnout, as Americans from all walks of life came out in record numbers in support to their candidate of choice. Controversial artist Shepard Fairey, whose work includes "street art, commercial art and design, as well as fine art seen in galleries and museums all over the world,” was one of these Americans. (Complaint, Fairey v. The Associated Press, 09-cv-01123, U.S. District Court, Southern District of New York, at ¶ 9). Fairey's "Hope" and "Progress" posters depicting President Barack Obama became symbols of the Obama campaign and its grassroots support. The image became a familiar sight on the morning commute, adorning cars' bumpers and back windows. A special version of the poster was created for President Obama's inauguration and another version of Fairey's Obama work now hangs in the Smithsonian Institution's National Portrait Gallery in Washington DC.

Yet Fairey's iconic image of President Obama is now under attack. The Associated Press claims that Fairey's Obama works infringe its copyright in the photograph on which the works are based. Fairey admits that he used a photograph, taken by Mannie Garcia at the National Press Club in April 2006, as a "visual reference" in creating his depiction of Obama (Complaint, at ¶ 18). The Associated Press, which claims to own the copyright to Garcia's photograph, contends that Fairey's works are unauthorized copies of that photograph. The Associated Press has allegedly demanded that Fairey enter into a licensing agreement covering his works (Complaint, at ¶ 37).

In response to the Associated Press' claims, Fairey filed suit in the Southern District of New York, seeking a declaratory judgment that, inter alia, his works do not infringe any copyrights held by the Associated Press, and are protected under the fair use doctrine (Complaint, at ¶ 2). In his complaint, Fairey maintains that he "transformed the literal depiction contained in the Garcia photograph into a stunning, abstracted and idealized visual image that creates powerful new meaning and conveys a radically different message that has no analogue in the original photograph" (Complaint, at ¶ 18). This allegation goes to establish a key element in the fair use analysis - a transformative use (See Campbell v. Acuff-Rose Music, 510 U.S. 569, 579 (1994)).

The fair use doctrine, codified in 17 U.S.C. section 107, provides that "the fair use of a copyrighted work, including such use by reproduction in copies. . .for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright" (17 U.S.C. § 107). Section 107 goes on to list the factors to be taken into account when determining whether a work is considered a protected fair use. These factors include: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. The Supreme Court has noted that "the four statutory factors [may not] be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright" (Campbell, 510 U.S. 569 at 578).

Whether Fairey's Obama works are protected by the fair use doctrine will depend on the court's analysis of these four fair use factors. Indeed, the fair use analysis is fact intensive and must be performed on a case-by-case basis. Artists who make transformative uses out of preexisting works will want to pay particular attention to the outcome of this case. However, the court's ultimate fair use determination will have reaching implications for the art world, as street art and graphic art continues to find its way into museums and galleries around the globe.

Art Insurance: Clean as a Rockwell

Sheppard Mullin — Fri, 05 Jun 2009 13:13:39 -0800

“Defective art” is buzzing up the art scene, but not in that postmodern kind of way. This time, it’s not so cool. For instance, director Steven Spielberg recently dealt with defective title when he discovered that his Norman Rockwell painting, the Russian Schoolroom, had been stolen from a Missouri gallery 16 years earlier. Spielberg has since returned the painting to the FBI, where it sits in custody battle between two other alleged owners. Casino magnate Steve Wynn, on the other hand, accidentally poked the tip of his elbow into his 75-year old Picasso painting, La Reve, leaving the work in defective condition. Wynn had originally struck a deal to sell the painting for a record sum, but is now in court disputing issues concerning loss of value.

In these examples, “defective art” would have been more “cool” and less burdensome had it been backed by sound insurance. For instance, had Spielberg obtained title insurance, he would have been reimbursed for the full cost of the painting, as well as any legal fees expended on defending ownership. Moreover, he may have avoided purchasing the work of art had the insurance company conducted a thorough title check. And while Wynn originally possessed insurance, there is debate as to the extent of coverage. To avoid situations like these, an art collector or investor should seriously consider insurance, and if so, ensure the policy effectively transfers various types of risks to the insurance company. Insurance companies whose names are frequently associated with art insurance include Axa Art, Aris, Willis Fine Art Jewelry & Specie, McGowan & Company, and Travelers Inland.

Title Insurance

Art title insurance, which acts like real estate title insurance, may be a worthwhile hedge for art collectors and investors alike. Given the long-standing industry practice of maintaining the confidentiality of buyers and sellers, a veil of secrecy shrouds many art transactions and by extension, the provenance of many pieces of art. To further complicate matters, the involvement of intermediate dealers in many art transactions keeps the primary seller and buyer at arms length. Finally, there is no central registry for art transactions to facilitate chain of title and provenance research. Because the art market lacks transparency, the illegal and illicit sale of art contributes to a “black market” worth an estimated $6 billion a year, and is ranked third most profitable illegal industry (preceded only by weapons and drugs).

This lack of transparency in a largely unregulated industry poses numerous problems for art collectors, namely defective title. This issue is particularly troublesome in the U.S. market, where an owner who is wrongfully dispossessed of a piece of art retains good title to artwork even if it is subsequently acquired by a good faith purchaser for value. As a result, the good faith purchaser for value will not only be forced to return the piece of art to its rightful owner, but also lose the purchase price he or she paid for the artwork.

Art collectors and investors who seek to mitigate such risk are increasingly turning to title insurance, which reimburses policy holders for the value of works that may be lost to title claims. Whether such an insurance policy covers the actual purchase of a work or the appreciated value of the work will depend on the policy. At the very least, the insured should verify that the policy adequately covers chain of title and lien risks. Additional considerations may include (i) the effect of a policy on the owner’s ability to pledge pieces of art as collateral for secured transactions and (ii) the extent to which a policy covers beneficiaries other than the owner of the artwork and litigation costs arising out of a provenance or ownership dispute. It is unlikely for a title insurance policy to insure the authenticity of a piece of art.

While there are clear benefits to title insurance, one frequent complaint is its cost. Premiums range anywhere from 1% to 7% of an artwork’s purchase price, making the average art title insurance premium more expensive than its real estate counterpart, which are typically less than 1% of the cost of the real estate. Insurance companies justify the high premium for art title insurance by highlighting the unregulated, non-transparent nature of the art market, where it is uncommon for a work of art to have a clean chain of title and indisputable provenance. Indeed, the title research process for art is significantly more complex than that of real estate, and may involve the research of historical records, archives and private collections written in multiple languages spread across several countries. Additionally, the cost of a policy may depend upon risk characteristics that are specific to a piece of art. For example, a piece of art from Europe that was looted by the Nazis during World War II is likely to have significant ownership gaps and therefore a higher premium.

Property Insurance

Besides defective title, an art collector or investor may seek to insure artwork against possible theft, loss, damage, or destruction. Such insurance is similar to a homeowner’s insurance policy, but applies to works of art and is often extremely specific with respect to types of risks covered under the policy. Accordingly, it is critical that the insured review the policy in detail to verify that it covers all the risks that he or she intends to cover. The extent of desired coverage will often depend upon the nature of the insured. A gallery, for instance may seek additional protection against employee theft, while a collector such as Wynn may seek coverage for unintentional damage for artwork. Geography too is an important consideration, with Florida collectors insuring their works against hurricane and flood damage and California collectors insuring them for earthquake damage. Regardless of the variation among policies, it is critical that a collector seek periodic appraisals of his or her artwork and adjust insurance coverage as necessary to account for appreciation in the value of the artwork.

To adequately insure artwork against theft or loss, special attention must be paid to the valuation clause of the policy. For instance, will the reimbursement involve an agreed-upon value, a scheduled value, or the current market value of the artwork at time of loss? To what extent, if any, will the insurance company make efforts to recover the stolen or lost art? Furthermore, if the artwork is recovered after the insurance company has paid out on the policy, then the insurance company may become the new owner of the work by subrogation. Since the fair market value of fine art tends to increase over the long term, the insured should therefore consider requesting a right of first refusal to repurchase the recovered artwork from the insurance company at a pre-negotiated price (i.e. the original value of the claim).

In cases involving damage or destruction, the insured should confirm that he or she is entitled not only to the reimbursement for restoration costs, but also for any loss in value to the artwork attributable to the restoration. He may also request for coverage over gradual deterioration or quality maintenance fees. The valuation clause of the policy is of particular importance when artwork is damaged or destroyed. For example, if the insurance company were to provide valuation services, then the policy might include an arbitration clause to adjudicate any disagreement that the insured might have with the appraised value of the artwork. Alternatively, the parties may agree to select a neutral third party to value the artwork. Finally, if the insured is a frequent seller of art, he or she may wish to mitigate risk for damage to a piece of art while it is in transit to its purchaser. Under such circumstances, it is important that the insured seek coverage for the artwork until delivery to the purchaser has been effected.

Like title insurance, the cost of insuring artwork against theft or loss is dependent upon the risk characteristics of the work in question. These may include the value of the artwork, the security and construction of the building where the artwork is stored, and whether or not the artwork is frequently moved and/or relocated. It is also possible for the insured to take out a policy for individual works of art in his or her collection, or a blanket policy covering the entire collection.

Although it comes at a cost, art insurance may be a sound investment. But like the studious pupils in Rockwell's Russian Schoolroom, the insured must do his or her homework, and carefully examine the policy with the assistance of an attorney to ensure full and complete coverage.

Selling That Warhol In the Museum Attic: Brandeis' Deaccessioning Raises Legal Issues

Sheppard Mullin — Wed, 18 Mar 2009 13:11:17 -0800

Museum collections have long tantalized would-be buyers and dealers of fine art. With most museums displaying a third or less of their collections at any given time - before it moved into its new building in 2004, the Museum of Modern Art was able to display only 10 percent of its magnificent collection - there's a lot of beautiful and valuable art that's not often seen by private collectors or the general public.

But deaccessioning, as the practice of selling off art by a museum is known, has long been controversial. The American Association of Museums prohibits the proceeds of such sales from being used for anything other than further acquisitions or direct care of collections, and the International Council of Museums' standard is similar. Most prominent American museums are members of one or both groups, which means that it's not ethical for member museums to sell off a Warhol or Mondrian to cover salaries or other operating expenses, no matter how acute the need.

Some argue that inflexible rules such as these can hobble museum leadership, exacerbating the financial difficulties that many of our finest museums, including the Los Angeles Museum of Contemporary Art, have recently faced. The economic downturn means more museums and nonprofits will be faced with difficult choices. And the emotional reactions fine art induces - the very reason we value it so highly - mean that even the most prudently taken decision to sell off art can create a firestorm of negative publicity.

Brandeis University is only the most recent institution to find itself caught up in a controversy over the sale of its art. Brandeis is facing negative press, anger from the donor/collector community, student protests and an investigation by the Massachusetts attorney general over its Board of Trustees' announcement that it would close the university's Rose Art Museum and sell off its collection, valued at $350 to $400 million dollars. The collection includes highly valuable works by artists including Andy Warhol, Jasper Johns, Robert Rauschenberg and Roy Lichtenstein. The rationale given for the sell-off was that the university's endowment is down 25 percent and it needs to concentrate on its core mission of student instruction and research.

Brandeis' predicament highlights an often poorly understood aspect of the deaccessioning controversy: Ethical controversy aside, a museum or other nonprofit may not have the legal right to sell off a given piece of art. It depends entirely on the terms of the specific instrument - often a will, trust or fractional gift rather than an outright deed of gift - through which the institution acquired the art in question. Such terms will be interpreted in line with legal precedent that may favor donor intent over current institutional interests.

All nonprofits - not just museums - are subject to oversight by state attorneys general. While AGs often have more urgent priorities than the role of nonprofit watchdogs, the art collector/donor community is composed of precisely those individuals who can set an investigation in motion with a phone call or two. In order to protect themselves, nonprofit trustees should be able to show that they have acted in good faith and exercised due care in arriving at their decision, and considered alternatives to selling the art.

To better understand how Brandeis' situation may play out, it's useful to look at some past cases and case studies in this area.

The Met Bequest of Adelaide de Groot

In the early 1970s, the Metropolitan Museum of Art endured months of negative publicity and an investigation by New York's attorney general, due to its sale and trade-off of works acquired through a 1967 bequest of Adelaide de Groot, artists such as Vincent Van Gogh, Amedio Modigliani, Henri Rousseau, Pablo Picasso and Pierre-Auguste Renoir. The sales and trade-offs raised eyebrows in part because they came so soon (five years or so) after acquisition and involved what appeared to be "sweetheart" deals with particular galleries. (There may be significant tax consequences if an artwork is deaccessioned soon after its acquisition.)

Ultimately, however, the Met was cleared of any impropriety or wrongdoing. Language in de Groot's will expressing a wish that the art stay in the museum, or at least in other museums, was held to be no more than a wish, or, legally speaking, "precatory," rather than an enforceable restriction. The controversy did prompt the Met to revise its internal protocols for deaccession of art, as well as for public notice regarding deaccessions.

N.Y. Historical Society's 1995 Auction

In the early 1990s, the New York Historical Society was in such dire financial straits that it was forced to close for two years. Its leadership informed the New York State Assembly that a sell-off was needed to obtain critical operating capital. The proceeds would go to an endowment that had been depleted over time.

Once again, the state attorney general was involved. This time, its office and the society reached an agreement that allowed the society to obtain a much-needed $11.2 million by auctioning off selected works, subject to a special provision under which any public museum, library or archive in New York state was permitted to pre-empt the successful bidder at auction for a price of 3 to 10 percent less than the winning bid. The Met, the Brooklyn Museum and Vassar College took advantage of the provision to keep a few of the more valuable art objects in the hands of New York's public institutions.

'Museum of Fine Arts v. Beland'

In Museum of Fine Arts v. Beland, 432 Mass. 540 (2000), a museum sought a declaratory judgment that the trustees of The White Fund were not free to sell certain paintings that were displayed at or housed in the museum under the terms of a testamentary trust dating from 1907.

The paintings, which included works by Camille Pissarro and Claude Monet, were housed at the Boston-based Museum of Fine Arts because the Rev. William Wolcott's will provided that they should be exhibited there until or unless appropriate exhibition facilities for them existed in the smaller city of Lawrence, Mass. Over the decades, the paintings remained with the museum though the trustees, rather than the museum, were their owners.

The Supreme Judicial Court of Massachusetts granted the judgment sought by the Museum of Fine Arts, holding that the trustees had no right to sell the paintings. The court stated that those paintings on display were fulfilling Wolcott's charitable intent as expressed in his will; and that as to those not then on display, the trustees had to explore other options before any variation from the terms of the trust would be permitted under the doctrine of cy pres (Latin: as nearly as possible), which allows for changes in the administration of trusts when strict adherence to a trust instrument's terms would make fulfillment of the settlor's charitable intent impossible. In so holding, the court went against the state attorney general, which had sided with the trustees.

Whatever the future may bring for the beleaguered Brandeis, it's clear that there's no substitute for the advice of experienced legal counsel when it comes to donating or leaving art in trust to a museum or other nonprofit institution; deciding whether to sell off art to raise operating capital or even to meet collection-related expenses; and when considering a purchase of art from a museum or nonprofit.

Donors should consider retaining counsel experienced in both art law and estate planning. Issues to discuss with counsel include whether any restrictions on ownership or use of the art are contemplated, and how the instrument (will; trust; deed of gift) should be worded and structured to make those restrictions enforceable. Museums will generally push for as much flexibility as possible. Conditions such as a guarantee that a particular work be displayed, for example, are often rejected as impractical given the space constraints most museums operate under. Donors should understand that whatever verbal representations may be made by museum personnel, it is the terms of the written instrument that will control should there be a dispute decades later.

Institutions and trustees must understand that a thorough legal review/due diligence should be undertaken prior to sale of an artwork, artworks or collection. Whether a museum or other nonprofit, trustees should understand that their state's attorney general does have the power to challenge their decisions and that the more controversial the decision, the greater the likelihood that power will be utilized. Trustees should be counseled on their fiduciary duties of good faith and due care at the time the sale of art is first contemplated. Finally, although advance notice of contemplated sales may negatively affect the ultimate price obtained for a particular piece, institutions should at least consider selected notice to interested donors and heirs. This may help prevent or at least manage negative emotional reactions - the kind of reactions that not infrequently translate into litigation.

Buyers should understand that just because an artwork is being sold by a reputable or even prominent institution does not always mean the transaction will be smooth sailing. No one wants to receive guarantees or - worst-case scenario - purchase a work, then find one cannot take possession due to an ongoing lawsuit. While the provenance of a work may be less of an issue when buying from a museum, in past decades museums operated with the informality that characterized the art world as a whole. Even when the sale is made through a reputable gallery or auction house, a prudent buyer should obtain legal counsel to review the transaction before closing the deal.

The Art of Making Donations

Sheppard Mullin — Wed, 18 Mar 2009 08:03:00 -0800

Charitable donations of artwork can give rise to substantial tax benefits, but donors need to be aware that not all donations are treated equally for tax purposes.

Many donors are not aware that the use to which the recipient organization puts the art will impact the amount of the charitable deduction the donor receives. Most donors assume that the deduction will be equal to the fair market value of the artwork at the time of the contribution (subject to certain limitations based on the donor's adjusted gross income). This is the case, however, only if the artwork is related to the exempt purpose of the charitable organization. If it is not, then the amount of the deduction is reduced by the amount of gain that would have been long-term capital gain had the donor sold the property at its fair market value when it was contributed. In other words, the amount of the charitable deduction will be limited to the donor's basis in the artwork (i.e. what he or she paid for it) rather than the artwork's fair market value. For donors who have held artwork for a long period of time, this difference can be substantial.

For example, if a donor donates a valuable painting to an art museum, the deduction would generally equal the full fair market value of the painting at the time of the contribution. If, on the other hand, the donor gives a valuable piece of artwork to his or her favorite charity to care for the homeless, thinking that the charity can sell it and use the proceeds to fund its operations, the amount of the deduction would generally be limited to the donor's basis or cost in the artwork, which could be significantly less than the current fair market value.

Other things to remember: The donor must satisfy certain reporting requirements in order to take advantage of the charitable deduction. These requirements become more stringent as the value of the claimed deduction increases. At the very least, written confirmation from the recipient organization must be obtained. The donor must also file Form 8283 if the amount of the deduction exceeds $500, and must obtain a written appraisal of the donated property from a qualified appraiser if the deduction exceeds $5000. If the contributed art is appraised at a value of $50,000 or more, the donor can request a statement of value from the IRS before filing the return that claims the deduction, and can rely upon the statement when claiming the deduction.

If you are considering a charitable donation of artwork, please contact David Ulich or Dawn Mayer of the Sheppard Mullin Tax Group to discuss the relevant considerations and requirements for claiming a charitable deduction for artwork.

Would You Like Fries With That Picasso? The International Franchising of World Class Museums

Sheppard Mullin — Thu, 29 Jan 2009 18:46:05 -0800

Decades ago, profit-driven business ventures such as McDonald's paved the way for international franchising – bringing the Big Mac to over 119 countries worldwide. In the late 1940's, the Guggenheim Foundation followed suit, paving the way for the international franchising of world class museums.

In 1949, the Guggenheim opened its first international outlet in Venice, Italy, and, over the next several decades, developed an aggressive franchising model which brought the Guggenheim to such overseas destinations as Bilbao, Spain and Berlin, Germany. Other franchises in Guadalajara, Mexico; Bucharest, Romania; Abu Dhabi, United Arab Emirates; and Vilnius, Lithuania are in the works.

Much to the chagrin of art connoisseurs, this model, pegged by Time Magazine as the "McGuggenheim," is now being employed by other world-class museums and is giving the Big Mac a run for its money – literally. According to McDonald's, it costs about $1 million to open one of its fast-food franchises, a figure dwarfed by recent museum franchising deals. For example, in March 2007, France and the United Arab Emirates entered into a $1.3 billion cultural accord to open a Louvre franchise in Abu Dhabi. $500 million will pay for use of the Louvre name; the remaining $800 million will support a newly-formed French Museums Agency that will, among other things, help to develop the museum, enhance the museum's conservation department, and oversee the museum's acquisition strategy and curator training program. The Middle-Eastern Louvre is just one part of a $27 billion plan to develop Saadiyat Island – a piece of land just off the coast of Abu Dhabi – as a high-end cultural district set to house at least four world-class museums (including the Louvre and the Guggenheim).

Museum franchise deals struck by the Louvre and the Guggenheim may, at first glance, seem like a harmless way for cultural organizations to expand. Critics of museum franchising, however, argue that franchise deals are unbefitting of world-class museums, which are traditionally seen as educationally-driven non-profit organizations. Meanwhile, supporters point out that a museum's ability to serve the public rests purely on its ability to raise money – a task that may be accomplished, in part, by franchising.

Franchising cynics emphasize that the practice may jeopardize the non-profit, public service nature of museums and support this argument with the Code of Ethics for Museums (full text available at http://www.aam-us.org/museumresources/ethics/coe.cfm). Promulgated by the Board of Directors of the American Association of Museums ("AMA") in 1993, the Code provides a series of ethical guidelines for its member museums (whose ranks include the Guggenheim) that assert the public interest nature of museums. For example, the Code specifies that museums are "grounded in the tradition of public service," "must take affirmative steps to maintain their integrity so as to warrant public confidence" and should "advance knowledge and nourish the human spirit."

Opponents also find foreign franchisees' profit-driven motives (i.e., franchisees trying to "buy" class) to be objectionable. Statements such as the one found on the "Abu Dhabi 365" blog fuel this concern. Recently, a franchise-supporter blogging about the Louvre Abu Dhabi deal wrote, "exclusiveness and grandeur have always been synonymous with Abu Dhabi and . . . the Louvre Abu Dhabi, is one more feather in the cap!" In 2005, Peter Lewis, former chairman of the Guggenheim Foundation and critic of museum franchising, went so far as to resign after a long-term disagreement with Tom Krens, the "grandfather" of the Guggenheim's franchising model, over the museum's economic growth plan. The UK's Guardian summed up Lewis' sentiments when it wrote that Krens turned the Guggenheim into a "global art circus, positioned conceptually somewhere between a casino and a department store."

Finally, critics worry that partnering with money-hungry franchisees will jeopardize the museums' artistic freedom and argue that franchising, which creates financial ties between museums and powerful foreign governments, is especially risky in the context of government-owned institutions (such as the Louvre).

Meanwhile, supporters of international museum franchising don't understand what the fuss is about. Supporters argue that museum franchising is no different than the widely-used practice of corporate sponsorship in the museum setting. Like sponsorship, franchising can bring in millions of dollars to cash-strapped museums, providing funds that can then be used to expand collections and endowments. Ultimately, supporters argue, museum franchises are simply educationally-oriented marketing opportunities being used to bring fine art to a wider class of people.

Supporters also point to the Code, which directs museums to ensure their programs are "accessible and encourage participation of the widest possible audience . . . ." This statement bolsters the argument that international franchising is beneficial and arguably supports aggressive franchising models such as the "McGuggenheim," which, in its mission statement "strives to engage and educate an increasingly diverse international audience through its unique network of museums and cultural partnerships."

With critics and supporters on two such divergent sides of the fence, perhaps a code of ethical guidelines for international museum franchising is in order? In 2001, the AMA issued its Guidelines for Museums on Developing and Managing Business Support (full text available at http://www.aam-us.org/museumresources/ethics/bus_support.cfm). The Guidelines expressly recognize "[a] museum's ability to fulfill its mission and serve its public rests largely on the resources available." This recognition comes with the caveat that, when entering into business relationships, museums should "ensure that no individual or business benefits at the expense of the museum's mission, reputation, or the community it serves."

It's likely that the Guidelines will ultimately be adapted to provide direction to museums on international franchising. Such direction is probably necessary, especially considering that the recent trend in international franchising of world-class museums is gaining momentum. With proper ethical guidelines in place, who knows, one day the Louvre "brand" could become the museum-equivalent of those infamous Golden Arches.

Where There is a Will, Is There a Way?

Sheppard Mullin — Thu, 29 Jan 2009 17:50:09 -0800

Indiana Jones, quite possibly the most famous treasure-plundering, antiquity-hoarding fictional archeologist of our time, has a way of making the process of art reclamation or, depending on one's perspective, appropriation, look grand. Indy, usually covered with grime, soot, debris and a perfect layer of five-o-clock shadow, dodges boulders, bullets and brutes armed with bows and arrows as he swashbuckles through exotic locales in search of his next great treasure. Of course, real life is never as grand and, despite the ongoing presence of evildoers, intrepid seekers are usually stopped dead in their tracks by much less ominous forces than bullets or giant rocks.

Hidden in all of this hyperbole is a real lesson. In the world of art restitution, where asset values soar and looted property abound, it can be easy to get caught up in a Raiders of the Lost Ark-esque whirlwind. The real danger may be in romanticizing the quest while overlooking the details. Julius H. Schoeps, the purported heir of a Jewish banker who’s property was allegedly appropriated by the Nazis, found this out the hard way.

In Schoeps v. The Andrew Lloyd Webber Foundation, 17 Misc. 3d 1128(A) (2007) (available at http://www.nycourts.gov/reporter/3dseries/2007/2007_52183.htm), Schoeps claimed that the Nazis forced his great-uncle, Paul von Mendelssohn-Barthody, to sell the Picasso painting, Portrait of Angel Fernandez de Soto, to a Berlin art dealer in 1934. The painting, which has also been called The Absinthe Drinker, eventually ended up in the possession of the Andrew Lloyd Webber Foundation, the defendant. On the eve of the painting's scheduled auction at Christie's International, Schoeps winged in, in true Indiana Jones fashion, claiming that the painting had been sold under duress and demanding that it be returned to its rightful owners, namely, Schoeps and the other Mendelssohn-Barthody heirs he claimed to represent. Schoeps' treasure, while not necessarily the Holy Grail, was expected to sell for between $50 and $60 million dollars at auction.

Unfortunately for Schoeps, Justice Rolando T. Acosto of the Manhattan Supreme Court was there to foil his restitution attempt. According to the court, Schoeps, in his attempt to reclaim the ill-gotten artwork, failed to comply with the New York Estates, Powers and Trusts Law, which mandates that an individual may only bring suit on behalf of an estate if he has received letters of appointment from the New York Surrogate's Court, and, therefore, lacked standing to bring the action. Although, in the words of the court, the litigation raised "very significant issues," the claim was tossed on what appeared to be a technicality. And therein lies the lesson: cases of art restitution are often marked by concurrent high drama and uncertainty, but can be decided on grounds that appear downright pedestrian. These cases are often spurred by war, clouded by uncertain documentation and intensified by dizzying resale values. In a sea of novel and nuanced legal issues, it may be easy to lose on technical grounds that hold much less headline-grabbing cachet.

In art restitution cases where decades have passed and proof of ownership is paramount, the law of wills, trusts and estates should not be overlooked. Whether there is a will or not, it is important to check state law, in order to ensure that the hopeful reclaimant has the right to do so. Julius Schoeps would have been well served had he followed such advice; yet, instead of complying with New York state law by requesting that he be appointed a personal representative of the estate, Schoeps "jumped the gun," so to speak, and saw his case dismissed. Nevertheless, even if Schoeps had established standing, it is far from certain that he would have been successful. Mendelssohn-Barthody did leave a will, but, as is often the case in art restitution cases, the evidence of the artwork’s rightful ownership is murky at best. Indeed, the court’s opinion implicitly noted that there appeared to be evidence that Schoeps may not have been the rightful heir in the first place. As the Schoeps’ case proves, the unclear ownership status of appropriated artwork has corresponding muddying effects on important prerequisites like standing.

When pursuing a claim for restitution of confiscated art or art sold under duress, it is important to be meticulous in determining whether the claimant has standing to pursue restitution. State law must be consulted and complied with in the designation of heirs. The law of wills, trusts and estates varies by state, so a thorough examination of a particular state's law will be necessary to avoid dismissal for lack of standing, as was the case in Schoeps. Even if a purported heir does have standing to pursue the claim, the claimed conveyance may be invalid under state law or indicate that the piece was validly transferred to another party. Rigorous research will often be necessary; there may be documentation from a number of countries spanning a number of decades and it may be conflicting. After all, by day Indiana Jones is actually Dr. Henry Walton Jones, Jr., a college professor of history and archeology. Although it often appears that Indy is improvising and relying more on instinct than intelligence, his success is often secured by his wealth of knowledge and distinct insight, culled from years of research and scholarship. In the world of art restitution, the development of this strong base is essential to the success of any claim for restitution.

Rethinking Antiquity Collections

Sheppard Mullin — Thu, 29 Jan 2009 16:54:54 -0800

According to an old Roman proverb, "art has no enemy except ignorance." Common usage of the proverb frequently references non-conventional works of art that break with the status quo by challenging aesthetic and/or cultural norms, and are subsequently decried by the establishment. However, in light of recent high-profile court cases to recoup rare cultural icons from world class museums, the proverb takes on new meaning with respect to collectors of antiquities. Indeed, remaining ignorant with respect to a work's provenance can be a costly mistake (and a public relations nightmare) for museums, galleries, and collectors alike.

Over the last two years, there have been many high-profile court cases to recoup rare cultural treasures from illustrious museums whose ranks include the J. Paul Getty Museum in Los Angeles, the Metropolitan Museum of Art in New York and the Museum of Fine Arts in Boston. The Getty recently agreed to return forty priceless artifacts to Italy, all of which were featured in a major exhibition in Rome. Italy also pursued a civil lawsuit against Marion True, the former curator of antiques at the Getty Museum, which was dropped after the parties reached an accord. More recently, the extensive looting that has occurred in Afghanistan and Iraq may lead to more cultural patrimony disputes. In the present environment, the focus for buyers of antiquities has thus shifted from an emphasis on authenticity, price and condition to provenance and clear title.

In recent years, patrimony laws have been the main basis for granting antiquities restitution claims. Many countries with a rich cultural heritage, such as Italy, Greece, Egypt or Mexico, have enacted so-called “patrimony laws,” which declare all antiquities discovered within a country’s border after the enactment of the statute to be the property of the state. More rigorous patrimony laws also impose restrictions on the export and sale of antiquities that had been discovered in that country prior to the enactment of the statute. Generally, such laws protect property with significant historical and archeological value or interest.

In recent cases, U.S. courts have determined antiquities possessed or disposed of by individuals in violation of a country's patrimony law to be "stolen property" pursuant to the National Stolen Property Act (“NSPA”). See, e.g., U.S. v. Schultz, 333 F. 3d 393 (2nd Cir. 2003). In order for a foreign government to succeed on the merits under the NSPA, it must prove that the artifact in question had been removed from the country without the government’s consent and in violation of that country’s patrimony law.

The U.S. is also signatory to multinational conventions such as the UNESCO Convention on the Means of Prohibiting the Illicit Import, Export and Transfer of Ownership of Cultural Property, each of which establishes import restrictions on cultural property, and has entered into bilateral treaties with countries including Mexico, Guatemala and Peru for the protection of cultural property. More recently, the U.S. has taken specific efforts to prevent the import of archaeological objects that have been illegally removed from Iraq, and has made significant progress working with China to protect its archeological sites by imposing heavier restrictions on the importation of Chinese art and antiquities.

After years of expensive, time-consuming, high-profile lawsuits, government officials and museum representatives alike have begun to resolve disputes related to cultural patrimony outside of the courthouse. For example, in November 2007, Italian cultural officials and American museum directors met in Rome to discuss possible future collaborations, such as art loans programs and joint scholarships in an attempt to alleviate demand for illicit Italian cultural patrimony in the U.S. After a successful meeting, the Italian Minister of Culture, Francesco Mutelli, stated that “[t]he phase [i.e., era] that was tied to illegal activity through unacceptable channels is closed, and we have arrived at a turning point where we have become partners against illegal traffic”. In the spirit of cooperation, Italy has extended loan periods and offered to expand collaboration with American museums on archeological excavations and related research. Despite the recent progress made between the U.S. and Italy, experts argue in favor of a global (as opposed to bilateral) solution to international cultural patrimony disputes.

As foreign governments become increasingly aggressive pursuing lawsuits to reclaim their cultural property, the provenance of artifacts will become an increasingly important consideration when determining the price and marketability of cultural treasures. Accordingly, thorough provenance research and extensive due diligence should become a routine practice for art buyers and dealers alike. Central databases such as The Art Loss Register (www.artloss.com), which aggregate information on stolen and looted works of art, are a good starting point for carrying out due diligence on prospective antiquities purchases. In a similar manner, purchase agreements involving cultural artifacts must be meticulously drafted, in particular those provisions relating to representations, warranties and indemnifications. Finally, to state the obvious, when the provenance of an artifact remains questionable despite extensive due diligence, the prospective buyer should seriously consider the financial and public relations risk associated with the purchase of potentially illicit cultural patrimony.

FASHION and CONTEMPORARY ART: an interesting liaison

Sheppard Mullin — Thu, 29 Jan 2009 01:25:48 -0800

The liaison between fashion and contemporary art has been continuously growing changing over the years. Painters, photographers, visual artists, illustrators, performers and creative artists, are commissioned by top luxury brands of fashion and trendy stylists to create new collections, to design their websites, to redesign the concept of their stores, to bring elements of innovation to their catwalks, showrooms and fashion show or to contribute to publications.

This attraction between art and fashion is not totally new. In 1930, the late-futurist painter Lucio Venna was commissioned to draft the sketches of the advertisement of Ferragamo' shoes. Gianni Versace used to commission works of art from artists such as Alighiero Boetti and Roy Liechtenstein for the launches of his collections. But these were rather isolated events.

What has changed in recent years are both the dimension and the structure of the phenomenon. The connection between contemporary art and fashion is more and more widespread. In other words, we are watching the “industrialization” of the relationship between contemporary art and fashion.

The immediate and more visible outcome of the transformation of this connection is the continuous birth of foundations dedicated to the arts and established by the owners of the top fashion brands. The creation of these foundations is also thanks to the tax advantages derived from operating through a foundation and investing in the arts.

Beside the long time established foundations of top fashion luxury brands as Cartier, Prada, Fendi and Trussardi, new foundations linked to very well known fashion brands have recently appeared. On the occasion of the first Contemporary Art Festival held in Faenza last May, a new Furla Foundation for Art was launched, as the natural development and the completion of a project started with the Furla Price for Art, established in 2000. Located in a magnificent palace of the 18th century in Bologna, restored with contemporary solutions, the foundation hosts works of art of famous international artists, such as Kiki Smith and Joseph Kossuth, and of emerging Italian artists, such as Lara Favaretto, Eva Marisaldi and Sabrina Mezzaqui. The foundation will be operational by the end of 2009, when the Biennale of Venice will be held.

Furla is one of the top Italian brands in the leather industry, a producer of handbags, shoes, small leather goods and belts handcrafted in Italy. It is present in 64 countries with its 196 free-standing stores and in 9 countries with its subsidiaries (United States, Japan, China, Hong Kong, Australia, France, Spain, Germany and UK).

Another foundation, Fondazione Claudio Buziol, was also born last May. Directed by Renzo di Renzo, the former director of Fabrica (the communication and innovation research center of the Benetton family) it is located in Venice, in an ancient historical building of the 18th century facing the Grand Canal. It was founded by the family Buziol, creator and owner of the brand Replay, one of the top Italian brands for casual wear, reinterpreting the 50's American style.

Perna Foundation, established in 2006 by Giovanna Palumbo Perna, the wife of Tonino Perna, businessman and collector, owner of IT Holdings, which controls top fashion brands such as Ferre' and Malo, made its public debut in the exclusive halls of Villa Ruffolo at the Ravello Festival, on the Amalfi Coast, last June. The exhibition, entitled "Mediterranean 2008", showcased works of art of 17 artists, all coming from Mediterranean countries, which narrate the richness and the complexity of their geographic area.

The dedication of the Perna family to the project is evident from the names of those on the committee for the foundation: Alanna Heiss, Director of P.S.1. Moma in New York, Vincente Todoli, Director of the Tate Modern in London, Marc Mayer, Director of the Musee d'Art Contemporain in Montreal, Paolo Colombo, former curator of the MaXXi in Rome and currently consultant for the Istanbul Modern and the Museum in Athens.

If industrialization of the relationship between contemporary art and fashion keeps on growing, the long time established foundations linked to the top brands of the fashion industry will likely changing their structure, aware of the importance of both creating new form of expressions and performing groundbreaking initiatives to promote their name and image.

As to the Prada Foundation, it is planning within 3 years to build a museum area covering more than 17,000 square meters in Milan, where the Luna Rossa's headquarter offices are now located, through an investment of 25 million Euro. This area, thought of as a showcase for any sort of work of art, will host new projects and works of art of the existing Prada collection, also related to cinema, design and architecture. The architect Rem Koolhaas has been commissioned to lead the project and the artistic direction has been assigned to world famous curator Germano Celant.

As to Fondazione Trussardi, it set up an unusual temporary exhibition in Piazza del Duomo in Milan last July. For a month, two hours a day, videos and films of the most interesting emerging international artists have been projected on the hugest led screen in Europe, the led wall of 500 square meters of Palazzo dell'Arengario. The installation of temporary exhibitions in the city streets has in fact become the distinctive feature of this young and innovative foundation.

As to Fondazione Fendi, it staged a theatrical comedy in the marvelous frame of Circo Massimo in Rome last spring. The Village People too performed on the stage.

On a separate but related note, new connections between fashion and art have shown up both on catwalks and in the collections of high fashion. Many fashions designers, always looking for new inspirations, try to find them in arts, by using works of art to make their fashion shows unforgettable events and to turn their clothes into a work of art.

If the designer is going to use works of art protected by copyright to create its collection and sell the corresponding items within a certain territory for a certain duration, it could be necessary to enter into a license agreement with the artist or with the owner of the economic rights, if they are different. It may be necessary to obtain the artist's previous consent in connection with its moral rights on the art work anyway, depending on the applicable law.

If the designer is going to use one-off works of art protected by copyright (especially for a fashion show or clothes), it could be preferable to sign a simpler agreement, setting forth only the amount to be paid to the artist and the general conditions for use of this work of art ( possible authorized alteration, quoting the name of the artist and so on).

Copying famous sculptures and placing them along the catwalks or reproducing on artwork images (famous paintings or photographs) on branded t-shirts without the previous consent of the artist are acts of infringement of the artist' s copyright in those works of art, provided that these rights are still effective.

Sometimes having been too late to sign a license agreement or obtaining the right to use the work of art, designers have been forced to sign settlement agreements to avoid the bad publicity of a criminal or a civil action, not to mention the bad publicity should the outcome of any such action be a finding of infringement against the designer. Normally the settlement requires the designer (i) to pay a lump sum to cover moral and economic damages of the artist and legal costs; (ii) to destroy the infringing goods and (iii) not to make any further use of the infringing items. Needless to say, damages paid for previous unauthorized use are normally much higher than the fees that the designer would have paid had he requested a copyright license before reproducing the artworks.

In this regard, the assistance and the consultancy of specialized copyright attorneys are fundamental. New contractual forms have to be shaped and customized for these new realities. Contracts need to be both more flexible and more clear in setting out the respective rights, consents and authorizations.

As to the foundations, traditional forms fit for traditional foundations have to be modified and reinvented according to the different purposes of the foundations established by the fashion industry to work with and in arts.

Authored by:

Claudia Scapicchio
Studio Legale Jacobacci & Associati