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Everyone knows that selling art in today’s weak market is no piece of cake, but few realize that sellers in California face an additional burden: By law, they must fork over a healthy slice of their sales proceeds to a work’s creator.

This was distasteful news to our client Candy, a prominent Beverly Hills dentist who recently auctioned a painting in New York that she had owned for decades. Over the years, the value of the work had skyrocketed. A month after the successful auction, Candy received a certified letter from the artist’s gallery demanding 5 percent of the gross sale price. In support, the gallery cited the California Resale Royalty Act of 1977, which grants artists a royalty on resale (commonly known in Europe as droit de suite).

"They must be kidding!" Candy exclaimed sourly.

Without sugarcoating the law, we explained that California is the only state mandating that an artist share in the proceeds of a secondary-market sale of a work, provided that the resale price is higher than the original purchase price and that certain other conditions are met. The right to receive royalty payments applies to sales made during an artist’s lifetime and within 20 years of his or her death, in which case payments must be made to the artist’s estate. The law covers public and private sales of original paintings, sculptures, drawings and art glass, although it excludes the initial sale of a work by the artist and some (but not all) sales by an art dealer within 10 years of the work’s first sale by its creator.

Surprisingly, the Resale Royalty Act applies even if the transaction occurs outside California, as long as the seller happens to be a California resident and the artist is either a U.S. citizen or has been a California resident for two years. The latter provision is sometimes called the "David Hockney clause," in reference to the California-based British artist.

The California law establishes no central collection agency, so sellers must locate the artists and pay the royalties themselves. If a seller cannot find an artist, or the artist doesn’t first locate the seller, the seller must give the artist’s name and the money due to the California Arts Council, which tries to locate the artist. If the Arts Council can’t do so, the council may, according to its Web site, use the money for its Art in Public Buildings Program.

The Resale Royalty Act has teeth if a seller doesn’t comply with its terms. Under the statute, the artist can seek damages within three years of a secondary sale or one year of the discovery of the sale, whichever is longer, and — importantly — the artist may be entitled to actual damages and legal fees. In some cases, sellers might even have to pay punitive damages, which would go to a California charitable or educational organization.

The California statute has been attacked on various grounds. Among the objections are that it applies broadly to sales outside California, that it gives an artist 5 percent of the gross resale price instead of a percentage of the resale profit, and that it covers art that was acquired before the enactment of the law.

Many attorneys (including us) question whether this law violates the U.S. Constitution’s Commerce Clause, but to our knowledge that issue has not yet been addressed by the courts. The 1980 case Morseburg v. Balyon in the Ninth Circuit U.S. Court of Appeals addressed other constitutional issues with the law, and it upheld the statute. In that case, the art dealer Howard Morseburg refused to pay resale royalties on two paintings, arguing that the California law was preempted by the 1909 federal Copyright Act and violated the Constitution’s due-process and contracts clauses. The court rejected these arguments.

"Nothing about this droit de suite sounds sweet to me," said Candy tartly. "I thought American law was based on unfettered property rights. Who came up with this unpalatable concept anyway?"

The answer was (quelle surprise!) the French. Starting in the 1920s, in response to the starving artist, or La Bohème, phenomenon, France began permitting artists to collect 3 percent of their works’ resale price. Today the French droit de suite applies to works sold through public auction and dealers and lasts for the life of the artist plus 70 years.

Commentators have said that the movement to introduce resale royalties in the United States began with artist Robert Rauschenberg, who took up the cause following a legendary incident involving the taxi mogul and art collector Robert Scull. Rauschenberg had sold his painting Thaw in 1958 for $900 to Scull, who auctioned it in 1973 for $85,000. After the sale, the artist reportedly declared, "I’ve been working my ass off just for you to make that profit." Rauschenberg even suggested that Scull give all artists whose works were sold at the auction free taxi rides for a week. Later Rauschenberg tried to draft a resale- royalty bill himself.

A federal version of resale-royalty legislation was introduced in the United States, but not passed, as part of the Visual Artists Rights Act of 1987. The final version of that law required only that the Copyright Office study whether a resale royalty was feasible. The office ultimately concluded that it was "not persuaded that there are legitimate economic interests of visual artists that would be helped by a resale royalty."

Recently, however, international pressure has been growing in favor of such royalties. A European Union directive, adopted in 2001 and implemented in 2006, requires all member states to institute resale royalties for visual artists. Even the United Kingdom, which was the strongest opponent to the directive — on the grounds that it would hurt the lucrative British art market — finally agreed, although last December it postponed the payment of royalties until 2012 in order to support the art trade during the current economic crisis.

New York , too, is considering a resale-royalty law. Like the California act — on which it is based — the New York legislation, which was introduced in the Assembly in February 2009 and referred to the Committee on Tourism, Arts and Sports Development, would require the seller of art created by a living or recently deceased artist to pay 5 percent of resale proceeds to the artist or to a government agency that would hold the money in the event the artist cannot be found. By most accounts, the New York proposal faces a very uncertain future.

Champions of a federal resale royalty law say that artists should be afforded the same right to profit from the increased value of their works as writers and composers, who benefit under current copyright law. Opponents argue that a resale royalty would actually hurt artists, since dealers would pay them less for works to accommodate this new "tax." Critics also contend that a resale royalty would only encourage buyers and sellers to transact business in places where the royalty did not apply.

Candy had a very good question for us: "Instead of relying on a sweeping law, why can’t artists who want royalties simply ask for them in their sale contracts?"

Such savvy artists as Carl Andre and Sol LeWitt have done just that, we explained. One of the first to do so in the United States was Grant Wood, who painted the famous American Gothic. After watching an art dealer resell his painting Daughters of Revolution in 1948 for four times the original purchase price, Wood reportedly vowed that all his future sale contracts would give him one-half the profits on any resales.

The problem with imposing a resale royalty by contract is that only a few successful artists have the clout to insist on it. Moreover, in our view, it is difficult, if not impossible, to make such contractual provisions binding on subsequent owners of art — not that some artists and dealers don’t try.

By the end of our conversation, Candy had reluctantly agreed to pay the resale royalty due on her painting out of the sale proceeds. She wrote the artist a sweet note with the check, but the experience still left a bitter taste in her mouth.

Thomas and Charles Danziger are the lead partners in the New York firm Danziger, Danziger & Muro, specializing in art law.

"A Sweet Deal" originally appeared in the July/August 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's July/August 2009 Table of Contents.