Resale rights for New Zealand visual artists – can NFT creators double dip?

Resale rights for New Zealand visual artists – can NFT creators double dip?

After signing free trade agreements with the EU and the UK, the New Zealand government is required to make a number of changes to our legislation – including introducing resale royalties for visual artists. Currently, musicians and writers tend to benefit each time the copyright of their works is reproduced, such as each time their song is played or their book is first sold. Visual artists, on the other hand, traditionally only benefit once, on the first sale.

There have been various non-legislative attempts to address this issue, such as collective licensing and automatic royalties built into smart contracts linked to non-fungible tokens (NFTs). NFTs in particular have skyrocketed in value and mainstream popularity recently, with most major auction houses in Aotearoa now selling art NFTs, and the global value of NFTs now exceeding $40 billion. Some prominent New Zealand artists and the estates of some deceased prominent New Zealand artists have followed the trend, with recent sales of NFTs based on works by Rita Angus, Karl Maughan, Gordon Walters, Fiona Pardington and many others. But despite this change, there are many visual artists for whom the majority of their income still comes from original or limited editions such as paintings, sculptures and original art prints.

Once enacted, the new Visual Artists Resale Right (bill) will create a potential new revenue stream specifically for visual artists, allowing them to receive 5% of the resale value when one of their visual artworks is resold, subject to the conditions below. While the 5% royalty is not contingent on the artwork increasing in value, it does mean that as the artist’s reputation grows over the course of their career, the artist directly benefits from any increasing value of their work on the secondary market.

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This offers potential benefits for qualified painters, sculptors, photographers and traditional printers. But what about NFT coins? Do they also qualify?

The new arrangement

To be eligible to receive a 5% Resale Royalty (ARR), below your bill:

  • The work of art must be an original work of visual art, or one of a limited number of copies, which is not a building, literary work or musical work (or anything else cut out by regulation)
  • At least one party must be a professional art market (someone involved in the trade of visual art, such as art auctioneers, dealers and consultants) or a publicly funded art gallery or museum. Direct sales are generally exempt, although the parties can sign up for the ARR scheme by agreement
  • The resale must be above a value threshold, which will be set in regulations (probably $1000)
  • The resale must have a connection to New Zealand, for example where one party runs a business in New Zealand, or the sale takes place in New Zealand. The artist must also be a citizen or resident of New Zealand, or from a country with which New Zealand has a reciprocal arrangement.

Under the scheme, the ARR will be paid to a collection agency, which will then distribute it to the artist (after recovering an agency fee).

Sellers and agents (or buyers if there is no agent) may be held jointly and severally liable for the royalty payment, if it is not paid. Importantly, unlike other similar rights, e.g. moral rights, the artist cannot waive or transfer his rights. If they choose to decline the payment, it will go to a cultural fund to support visual artists’ career sustainability.

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How does the regime stack up against other revenue-generating schemes, such as non-fungible tokens (NFTs)?

The ARR scheme will work in parallel with other rights that artists may have, such as when an artist licenses their copyright (for example by putting a copy of their painting on goods) or (at least in theory) through a smart contract embedded in an NFT. However, with NFTs in particular, there is some uncertainty as to whether these digital artworks are “in” or “out” of the regime, and what the implications of being “in” might be.

While the ARR scheme specifically includes “digital works of art” (as opposed to some foreign equivalent rights):

  • It remains unclear whether an NFT is an “original” work of visual art, or whether it is merely a representation of ownership. There is also a lack of international guidance on the issue (which is not surprising, given foreign schemes were introduced over 10 years ago, before NFTs entered the mainstream)
  • While most NFTs are bought and sold using cryptocurrency (which may set them apart from some foreign regimes), the bill contemplates that resale should be in a currency other than the New Zealand dollar, or “paid in kind”. Although cryptocurrency is not the fiat currency, it can in principle be “paid in kind”.

If caught by the ARR regime, NFTs sold through auction houses or other art market professionals may (in theory at least) be able to “double-dip” and qualify for both ARR and a separate NFT code royalty.

We think this raises some interesting issues. Will NFT marketplaces need to build in funds to pay royalties to the collection agency, or can sales through a marketplace qualify for the private sale exemption? Are there complications where the NFT author and artist are not the same person?

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Although draft regulations under the bill have been issued, the draft does not currently clarify the bill’s application to NFTs. The regulations may still specifically include or exclude NFTs.

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