1. Legal basis

§ 26 UrhG (German Copyright Law) stipulates the right for the artist to participate at a rate of 5 % of the sale price in every case where an original artistic work is resold by an art dealer or auctioneer as buyer, seller or agent.

The legislation covers auctioneers and dealers who operate from business establishments as well as persons who operate on a commercial basis without business premises.

Additionally the law stipulates that the artist may request information of an art dealer or auctioneer as to which of the original artistic works have been resold by an art dealer or auctioneer as intermediary during the previous calendar year. These claims may only be asserted through a collecting society.

2.   The German law concerning the inclusion of creators such as artists in the social security system of the Federal Republic of Germany (Künstlersozialversicherungsgesetz - KSVG) obliges the art market - galleries included - to contribute a certain percentage of their overall payments` to artists for the acquisition of works, i.e. first sale, to the social security administration. This percentage is being defined by the Ministry of Social Security and varies between 5 and 7 % a year.

By law galleries may choose to create a fund in order to collect all contributions and to pay the obligations of the whole group in one lump sum to the social security administration; thereby the collection is facilitated and can be based on other criteria than those stipulated by the law, as long as the financial obligations of the group are covered by the lump sum.

German galleries created such a fund in co-operation with VG BILD-KUNST.

3.   As a consequence of the above mentioned legislation § 26 UrhG (Copyright Act) and the KSVG (Social Security Law) almost every financial transaction involving an original artistic work places a financial obligation on the dealer: if he buys directly from a living artist, he is obliged to pay the contribution according to the social security law; if he resells a work by an artist protected by the copyright law he has to pay a remuneration for the resale right according to § 26 UrhG.

4.   The associations of art auctioneers and art dealers in Germany and VG BILD-KUNST agreed to facilitate the collection of artists` resale rights as well as the collection of social security obligations due from galleries. In 1980 they concluded a contract entitling the collecting society VG BILD-KUNST to collect money on a lump sum basis to pay for the obligations of both art galleries and art auctioneers.

On the basis of statistics on the volume of resales subject to resale right legislation as well as on those first sales subject to payments to social security, a lump sum was calculated which covers both obligations. This lump sum is calculated anew every two years taking into account changing market factors and ensuring that payments from galleries cover their obligations to the social security and to the artists entitled to resale royalties.

The contracting parties then agreed to use a special basis for the calculation of this lump sum: instead of the obligations under the copyright law (i.e. the resale price of a single identified work of art) or the KSVG (the price of which the art dealer bought the work of art from the artist) the annual turnover of galleries and auctioneers relating to works of art created after 1.01.1900 was chosen as the basic parameter.

The galleries and auctioneers have to pay an agreed percentage of their turnover calculated according to this basic parameter.

The turnover can be calculated and declared easily, as it is part of the tax declaration every art dealer has to deliver to the tax authorities. Information about the annual lump sum is provided by the galleries` auditors or - the gallery being small - by the galleries themselves. VG BILD-KUNST has the right to inquire with the assistance of public institutions, if the declarations are thought to be incorrect.

The percentage of the annual turnover calculated under the lump sum system is negotiated every year taking into account the art market's development, the needs of social security and the views of the collecting society administering resale royalties. It varies between 0.8 and 1.3 % for galleries and between 1.8 and 2.3 % for auctioneers.

5.   Galleries and auctioneers wanting to participate in this lump sum system sign a contract designed by the galleries` association in conjunction with VG BILD-KUNST and pay their annual obligations on a quarterly basis. VG BILD-KUNST, administering the system, divides the lump sum collected into two parts, one part payable to the social security to cover the obligations of the galleries, the other payable to those artists entitled to receive remuneration from the resale right.

Galleries participating in the system register annually the resales made by them in relation to those artists represented by VG BILD-KUNST, in order for the collecting society to distribute resale royalties. Auctioneers whose results are published in printed reports deliver these reports to VG BILD-KUNST, these are then used as another basis for the distribution of resale royalties.

In addition, VG BILD-KUNST uses other sources of information, such as observation of the art market and information given by the artists themselves in order to verify the art market's information.

VG BILD-KUNST ensures that the distribution of each resale - being identified through the information received by galleries or auctioneers - is carried out according to the 5 % resale royalty provided for in the law. If the lump sum paid by the art market does not cover the obligations to the artists, the percentage is renegotiated in order to cover those obligations.

6.   Galleries which do not want to join the lump sum system have the right to opt out and instead, meet their obligations according to current legislation. In that case, if they are dealing only with first sales of artistic works, they have to declare all payments to living artists to the social security institution and to pay the percentages as defined by the social security legislation; if they resell artistic works, they have to notify the collecting society every year according to § 26 of the resales with regard to the members of the collecting society and to pay the percentage established in law for these resales.

Practice shows that 80 % of all galleries and auctioneers have joined the lump sum system; the remaining 20 % prefer to make individual payments.

7.   The system described above enables the art market to deal with two legal obligations in the most simple administrative way - social security and resale royalties in only one declaration of the annual turnover and a second declaration listing works actually resold. As the system is supervised by a common committee formed by representatives of both art dealers and the collecting society, problems concerning details of collection and distribution can be solved by the interested parties.

The lump sum system avoids the danger of individual artists being pressurised by galleries, or discriminated against when trying to obtain payment of the resale royalty. Galleries pay only a lump sum, based on turnover, to the collecting society and it is the collecting society which pays individual artists.

Some artists prefer to act independently and where such an artist has a claim against a gallery participating in the lump sum scheme, then the gallery refers the artist to the collecting society for payment. If the artist does not wish to deal the collecting society then the gallery pays the artist direct and is reimbursed by the collecting society. Where an individual wishes to make a claim from a gallery not participating in the lump sum scheme then they must approach the gallery with evidence in support of their claim and they have no automatic right to information from that gallery. Very few artists choose to act independently. Galleries are encouraging their artists to become members of the collecting society in order to get their share of the percentage paid by the gallery. The system has led to a fruitful relationship and a high level of co-operation between the association of galleries and the collecting society representing the artists and is well supported by public authorities and the professional organisations of living artists. The system also ensures that the social security system gets - by using a simple system for collection - money due from the art galleries as a group; in addition, the artists get exact payment for the resale of their work, calculated according to the percentage stipulated by the copyright law.

8.   The system described could also work easily with only one component: for example, if the social security payment which only exists in Germany (and in France) were excluded from the collecting system, galleries and auctioneers could easily use it to pay those obligations resulting only from the resale royalty. The only difference would be for the annual percentage to be lower. Therefore this system could also work in countries where the social security obligations do not exist.

9.   The EU directive on resale right provides for a decreasing percentage of the sales price to be paid to the artist. Once implemented into the German copyright act, this decreasing scheme can easily be incorporated in the existing lump sum system.

Bonn, 2003-11-07

gez. Gerhard Pfennig

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