The Art Law Review: USA

Introduction

The US art market is diverse in its composition, with stakeholders that include art dealers and galleries, advisers and appraisers, auction houses, museums, private collectors, foundations and artists. The laws that govern the art transactions and legal disputes among these market players comprise a varied combination of federal and state laws, differing in content and application depending on the jurisdiction and the matter involved.

On a global scale, the US art market is considered the largest in the world. In 2020, sales reached an estimated US$21.3 billion, with an estimated market share of 42 per cent of global sales.2 However, the covid-19 pandemic continues to have a significant impact on the art market, both in the US and as a whole. As a result of the pandemic, global sales in 2020 are at their lowest levels since 2009's global financial recession.3 In addition, much of the art business continues to be conducted online. Indeed, online sales of art and antiques have doubled in value as compared to the previous year, accounting for 25 per cent of the market's total value.4 Even so, with the return of in-person art fairs and the growth of non-fungible tokens (NFTs),5 the art market may be on its way to recovery, although it may be too soon to tell.

The year in review

Art fraud and financial crimes perpetrated by means of art transactions have been in the forefront of art news in the US. Unlike other markets in the US, the art market remains largely unregulated, making it the 'largest unregulated market in the world'.6 Indeed, there exists no regulatory agency in the United States overseeing art transactions that is equivalent to, for example, the Securities and Exchange Commission (SEC), which regulates the US securities market. This lack of regulation has created a lack of transparency in the art market that makes it vulnerable to fraud, money laundering and other financial crimes.

A recent example of the effects of this involves the now-disgraced art dealer, Inigo Philbrick, who has been accused of defrauding clients of over US$20 million and has been charged with wire fraud and aggravated identity theft. According to the government's complaint, Philbrick knowingly 'misrepresented' the true ownership of the artworks at issue, 'for example, by selling a total of more than 100 percent ownership in an artwork to multiple individuals and entities without their knowledge; and by selling artworks and/or using artworks as collateral on loans without the knowledge or permission of co-owners, and without disclosing the ownership interests of third parties to buyers and lenders'.7 In 2020, Philbrick was apprehended while on an island in the South Pacific, and has spent nearly a year and a half incarcerated after he was denied bail as a flight risk. He is now expected to plead guilty to the charges, after initially pleading not guilty.8 If convicted, Philbrick could be sentenced to a maximum prison term of 20 years for wire fraud, and a mandatory prison sentence of two years for aggravated identity theft. At the same time, civil lawsuits have been filed in multiple jurisdictions by Philbrick's former clients and investors in connection with artworks affected by the fraud scheme.

Around the globe, jurisdictions outside the US have put in place laws to combat this type of opacity in the art market;9 and the US may also follow suit. In July 2020, the US Senate's Permanent Subcommittee on Investigations released a report documenting the lack of transparency in the US art market and recommending, among other things, that Congress amend the Bank Secrecy Act (BSA)10 to add art to the 'list of industries that must comply with BSA requirements'.11 According to the report, '[i]llegal activity, including money laundering, in the art market is made possible, in part, because the art market is generally not subject to the transparency requirements of the [BSA]'.12 The BSA, which is the primary anti-money laundering law in the US, currently applies to 'dealers in precious metals, stones and jewels, as well as sellers of automobiles, planes and boats, casinos, real estate professionals, travel agencies and pawnshops'13 – but not to dealers in art.

On 1 January 2021, Congress passed the National Defence Authorization Act for 2021, which includes a new law, the Anti-Money Laundering Act of 2020, requiring individuals engaged in the antiquities trade to comply with the requirements of the BSA. The BSA includes requirements for monitoring and reporting suspicious activity to federal authorities, establishing and maintaining BSA and anti-money laundering programmes, and identifying and conducting due diligence on customers. The Law also requires the US Treasury department to implement regulations within the year and, in coordination with other government agencies, study and report on the facilitation of money laundering and financing of terrorism through the art market.

Art disputes

i Title in art

The Uniform Commercial Code (UCC), which has been adopted in some form by every state in the United States, is a collection of laws governing commercial transactions in the US.14 Sales of tangible personal property, such as fine art, are governed by Article 2 of the UCC. Article 2 provides that title to artwork will generally pass from the seller to the buyer upon the physical delivery of an artwork.15 Where a seller delivers an artwork to the buyer, but with reservations as to the transfer of title – for example, until payment is made in full – this reservation will generally be limited to a security interest in the property.

Where the seller does not possess good title – such as when the artwork has been stolen or where some other defect in title exists – title may not transfer to the buyer, often leading to a title dispute. A basic tenet of US law is that no one, not even a good-faith purchaser for value, can obtain good title to stolen property. This rule applies regardless of whether the purchaser acquired the artwork at auction or by private sale, or from a subsequent purchaser rather than directly from the thief. This is because title to stolen property is considered void.

In contrast, a good-faith purchaser for value may acquire title to an artwork where the transferor possesses voidable title.16 The UCC illustrates specific instances in which voidable title may arise, including, for example, when '(a) the transferor was deceived as to the identity of the purchaser, or (b) the delivery was in exchange for a check which is later dishonored . . .'.17 The UCC also allows a merchant – such as an art dealer, gallery or auction house – to transfer good title to a buyer in the 'ordinary course of business', where the artwork was entrusted to that merchant. This provision is commonly referred to as the 'entrustment doctrine'.18

The US District Court for the Southern District of New York recently examined the applicability of the entrustment doctrine in Abbott Laboratories v. Feinberg.19 This case involved a title dispute to Maine Flowers, an oil painting by the US artist Marsden Hartley, which was allegedly stolen from the corporate art collection of the plaintiff, the pharmaceutical company Abbott Labs.

After a three-day bench trial, the Court found that the plaintiff had established that it had purchased the original painting in 1960, and that in 1987, the painting was removed from its corporate headquarters for restoration and replaced with a forged copy. The art restorer then sold the original painting to a purchaser, who then sold it to a gallery in New York. In 1993, the gallery resold the painting. In 2016, the plaintiff discovered that the artwork in its collection was a forgery, and in 2018 traced the original painting to a purchaser named Carol Feinberg, who had acquired it from the gallery. Among the defences raised by the defendants, who were the co-executors of Feinberg's estate, was that under the entrustment doctrine, Feinberg had acquired good title. The defendants argued that the plaintiff gave the painting to the art restorer knowing that the restorer was a merchant who might sell the artwork. The Court rejected the argument, finding that the plaintiff had engaged the art restorer's services exclusively for restoration and for art appraisal. In addition, the record did not establish that the art restorer had engaged in the business of buying and selling art; the restorer therefore could not be considered a merchant for purposes of the doctrine.

ii Nazi-looted art and cultural property

Nazi-looted art

In the United States, civil claims for the return of art misappropriated by the Nazis are determined by the courts or otherwise resolved through alternative dispute resolution (ADR). Unlike in many European countries, there is no restitution commission or committee that has been established by the US government for evaluating claims to artworks that were lost during the Nazi era. In part, this is due to the federal government's limited involvement in the operation of museums; the vast majority of US museums are privately owned or are owned by state and municipal authorities.

In contrast, many museums and other art institutions outside the US are owned by the state. As a result, the Foreign Sovereign Immunities Act (FSIA) is often invoked in cases concerning art misappropriated during the Nazi era.20 Under US law, foreign states and their agencies and instrumentalities are immune from jurisdiction in a US court unless certain exceptions apply, which are set forth in the FSIA. Since its enactment in 1976, these exceptions have been used as a basis for jurisdiction over foreign sovereigns being sued in the United States.

Of the enumerated exceptions, the 'expropriation exception' is most utilised in Nazi-era restitution cases. This exception provides that, where property has been taken in violation of international law, and either that property or any property exchanged for it is present in the US in connection with a commercial activity carried on in the US by the foreign state, or that property, or any property exchanged for it, is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the US, then that state will not be immune from suit where the rights to such property are at issue.21

On 3 February 2021, the US Supreme Court issued a unanimous decision in Federal Republic of Germany v. Philipp, holding that the expropriation exception does not apply where the property at issue has been taken by the foreign state from its own nationals.22 The Supreme Court's decision in this case is exceptionally important to the development of the FSIA. In Philipp, the heirs to a collection of medieval artworks known as the Guelph Treasure brought a claim against the Prussian Cultural Heritage Foundation, a German agency, for restitution of the treasure. According to the heirs, it had been sold in 1935 by a consortium of Jewish art dealers to the Nazi-controlled state of Prussia, allegedly as agents of Hermann Goering.

In its brief to the Supreme Court, Germany posed, inter alia, the following question: whether the expropriation exception 'provides jurisdiction over claims that a foreign state violated international human-rights law by taking property from its own national within its own borders, even though such claims do not implicate the established customary international law addressing states' expropriation of property'.23 The parties disputed whether property taken by a foreign state from its own nationals during the course of genocide, in this case the Holocaust, constituted a 'taking' for purposes of the FSIA. Germany argued that a violation of the 'international law of takings' only addresses when a state has taken property from another state's national. Respondents, on the other hand, argued that any 'genocidal thefts' violate international law.

The Supreme Court held that the phrase, 'rights in property taken in violation of international law', as used in the FSIA, incorporates the 'domestic takings rule'. Pursuant to this rule, what a foreign state 'does to property belonging to its own citizens within its own borders is not the subject of international law'; therefore, it is outside the scope of the expropriation exception. The Supreme Court left open the heir's alternative argument that the consortium members were not German nationals at the time of the transaction. The Court remanded the case for further proceedings to consider the argument, and the case is now proceeding in the district court.

A second case involving the FSIA, Republic of Hungary v. Simon,24 was before the Supreme Court at the same time as the Philipp case. In Simon, survivors of the Holocaust in Hungary filed suit against the Republic of Hungary and Magyar Államvasutak Zrt, Hungary's state-owned railway company, seeking compensation for the seizure of property that was allegedly taken as part of the Hungarian government's genocidal campaign. In relevant part, Hungary petitioned the Supreme Court for certiorari on the question of whether the doctrine of international comity may apply where jurisdiction otherwise exists under the FSIA.

The Supreme Court issued a per curiam opinion vacating the appellate court's ruling in the case and remanding for further proceedings consistent with the Supreme Court's decision in Philipp. In an earlier appellate court proceeding in Simon, the court of appeals held that the domestic takings rule had no application 'in the unique circumstances of this case, in which, unlike in most cases involving expropriations in violation of international law, genocide constitutes the pertinent international-law violation'.25 The case is now proceeding at the district court level, in which Hungary has moved to dismiss the survivors' complaint.

Cultural property

The US government combats trade in illicit antiquities using a variety of legal tools. One common method is the use of civil forfeiture actions.

One type of forfeiture proceeding used in the context of looted cultural property is a civil action brought by the government pursuant to 19 USC Section 1595a. Section 1595a is a customs statute that authorises the forfeiture of any merchandise that is 'stolen, smuggled, or clandestinely imported or introduced' or attempted to be introduced into the United States 'contrary to law'.26 A violation of the National Stolen Property Act (NSPA) often serves as the basis of the 'contrary to law' prong of the law.

The NSPA, which may also be employed in Nazi-looted art matters, is a statute that allows the government to both criminally prosecute those who knowingly possess, sell, receive or transport stolen goods valued at more than US$5,000 that have either crossed a state or United States boundary line or moved in interstate or foreign commerce, and to render such objects subject to forfeiture proceedings. To fall under the purview of the NSPA, an object must qualify as 'stolen'. As established by US jurisprudence, antiquities acquired in contravention of a foreign nation's valid patrimony law are considered stolen for purposes of the NSPA.27

Another basis for forfeiture commonly used by the US government is a violation of 18 USC Section 545, also a customs statue. This Section makes it illegal to knowingly smuggle or 'clandestinely' introduce or import any merchandise 'contrary to law'. As with Section 1595a, government authorities often use Section 545 in conjunction with the NSPA.

A recent forfeiture claim illustrates the application of these statutes. On 18 May 2020, the US government filed a complaint for the civil forfeiture of the Gilgamesh Dream Tablet, which was purchased by Hobby Lobby Stores, Inc (Hobby Lobby) for donation to or display at the Museum of the Bible.28 The government's complaint explained that property is considered 'stolen' pursuant to 19 USC Section 1595a and the NSPA 'if it was taken without official authorisation from a foreign country whose laws establish state ownership of such cultural property'.29 In the case of the Tablet, it was alleged to have been removed from Iraq in contravention of the country's patrimony law; therefore, it would constitute stolen property subject to civil forfeiture.

On 15 July 2021, the US government filed an amended complaint, alleging that the Tablet was also subject to seizure and forfeiture as stolen Iraqi property that was introduced or attempted to be introduced into the US contrary to 18 USC Section 545, in addition to the NSPA, as well as under 19 USC Section 2609 as property designated as archaeological or ethnological material that was exported from the Republic of Iraq contrary to law. On the same day, Hobby Lobby entered into a settlement with the government, consenting to the forfeiture of the Tablet, which was subsequently ordered by the US District Court for the Eastern District of New York.

A statement by the Assistant Attorney General described the forfeiture as demonstrating 'the department's continued commitment to eliminating smuggled cultural property from the U.S. art market'.30

iii Limitation periods

In the United States, statutes of limitations often vary in content and application from state to state, and differ depending on the type of claim being pursued. For example, if a buyer acquires an artwork that is subsequently determined to be inauthentic, the buyer may bring an action for fraud against the seller. In New York, the statute of limitations governing fraud claims is either six years from the date of the fraud (i.e., the date of purchase of the artwork) or two years from the date the fraud was discovered, or with reasonable diligence, could have been discovered.31 In contrast, other states apply different limitation periods. For instance, under Florida law, a claim for fraud must be commenced within four years.32 Accrual for the claim begins 'from the time the facts giving rise to the cause of action were discovered or should have been discovered with the exercise of due diligence'; however, the action 'must be begun within 12 years after the date of the commission of the alleged fraud, regardless of the date the fraud was or should have been discovered'.33

Where the cause of action involves claims for replevin or conversion of art, accrual may depend on whether the possessor holds the art in good faith. In some states, including New York, a 'demand and refusal' rule applies, under which the three-year limitation period does not begin to run until the owner makes a demand for the return of the property and the possessor refuses. The majority of states, however, follow a 'discovery rule'. In these states, the limitation period, which differs depending on the state, begins to run when the plaintiff discovers or, after the exercise of reasonable diligence, should have discovered the whereabouts of the artwork.

For art recovery cases involving art lost during the Nazi era, a special statute of limitations applies – the HEAR Act of 2016.34 Under the terms of the Act, which establishes a uniform federal statute of limitations, the limitation period starts to run upon the actual discovery by the claimant of the identity and location of the artwork or other property and the claimant's possessory interest in that property. In the case of a possible misidentification, the Act provides that discovery is deemed to occur 'on the date on which there are facts sufficient to form a substantial basis to believe that the artwork or other property is the artwork or other property that was lost'.35 For those who had claims already pending in court, the law deemed such claimants to have had the requisite knowledge as of the date of enactment of the statute, unless the claimant was otherwise barred under an exception to the Act.36 The law is set to expire on 1 January 2027, although it will still apply to claims already pending at that time.

In addition to state and federal statutes of limitations, the equitable doctrine of laches may also bar otherwise timely art claims. To establish the defence, a possessor must show that the claimant unreasonably delayed in bringing the action to the prejudice of the possessor. A court may also weigh the relative equities between the parties in determining whether to apply the defence.

iv Alternative dispute resolution

In the United States, there are no specialised ADR organisations dealing specifically in art matters. Moreover, as a general matter, art disputes that are resolved by ADR are almost always subject to confidentiality provisions; indeed, confidentiality is one of the top reasons for parties to avoid litigation. Consequently, the prevalence of ADR in resolving art disputes in the US is difficult to quantify.

Fakes, forgeries and authentication

In July 2021, the US Attorney for the Southern District of New York announced that it had arrested Angel Pereda for his role in a scheme to sell art forgeries that he claimed were by Jean-Michel Basquiat and Keith Haring, among other artists.37 To deceive purchasers into buying the artworks, Pereda allegedly falsified the provenances for the works – which if real, would be worth millions of dollars. If convicted, Pereda could face up to 20 years in prison.

Such cases of forgery are certainly not new to the art market; and while forgeries can often lead to criminal prosecution, as in the case of Pereda, civil litigations often follow, with plaintiffs pursuing various legal claims in the wake of such scandals.

Where an artwork is discovered to be a fake, a forgery or otherwise inauthentic, claims based on fraud, mutual or unilateral mistake and breach of express or implied warranties are common. Under certain circumstances, an action for breach of warranty may be particularly useful because the buyer need not prove any fault by the seller. To establish a breach of a warranty, which can be either express or implied under the UCC,38 the buyer need only prove that a warranty existed, the goods failed to conform to that warranty and he or she suffered a loss as a result. A successful breach of warranty claim allows a buyer to recover the difference between the value of the defective artwork and the value of the artwork as it was warranted (i.e., an authentic artwork).39

Pursuant to the UCC, an express warranty may arise from: (1) '[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain', and (2) '[a]ny description of the goods which is made part of the basis of the bargain'.40 An express warranty may also arise from representations made in materials such as advertisements or catalogues, or from a seller's oral statements to the buyer. Where the seller is a non-merchant, a court may consider such descriptions, including statements of attribution, to be mere opinion and not an express warranty. But where the seller is a merchant or is otherwise considered to have a superior level of expertise, and the seller records the artist's name in the invoice, this will generally be considered an express warranty.

A buyer may also bring an action against a gallery, art dealer, auction house or other art merchant for breach of an implied warranty of merchantability.41 For art to be merchantable, it must, in relevant part, (1) be able to 'pass without objection in the trade under the contract description'; (2) be 'fit for the ordinary purposes' for which it is sold; and (3) 'conform' to the 'affirmations of fact' made in the sale catalogue or the bill of sale.42 A buyer may be able to claim a breach of implied warranty of merchantability if he or she is able to demonstrate, for example, that (1) a work of art does not conform to its description; or (2) his or her investment or aesthetic purposes are compromised because the work is a forgery. Where the seller has reason to know of 'particular purposes for which the goods are required' and the buyer is relying on 'the seller's skill or judgment to select or furnish suitable goods', the buyer is also provided with an implied warranty of fitness for a particular purpose. Typically, this implied warranty will apply where the seller is a merchant, but it may, in particular circumstances, apply in cases where the seller is not. Both implied warranties may be excluded or modified by the parties.

Some states have enacted laws specifically addressing art warranties. Under NY Arts and Cultural Affairs Law Section 13.01–13.21, an art merchant that sells an artwork to a non-merchant buyer creates an express warranty if, in its written description of the artwork, the merchant identifies the artwork with a particular author or authorship. According to this Law, whenever an art merchant furnishes a certificate of authenticity to a non-merchant purchaser, authenticity is presumed to be a basis of the bargain and creates an express warranty. The art merchant can temper this warranty by making the attribution clear. The dealer can say the art is by the artist, 'attributed to' the artist or from the 'school of' the artist.43 To negate an express warranty of authenticity under this Law, a disclaimer must be conspicuously written and contained in a separate provision from the language creating the warranty. Words of 'general disclaimer' are not considered sufficient to 'negate or limit an express warranty'. To protect the buyer, however, a disclaimer of express warranty will be ineffectual if it is later shown that the work of art was counterfeit or if 'the information provided is proved to be, as of the date of sale or exchange, false, mistaken or erroneous'.44

Art transactions

i Private sales and auctions

As a result of the covid-19 pandemic, which began at the start of 2020, the art market, like almost all other commercial activity, was disrupted. Parties to contracts negotiated to delay performance, or in some cases, parties failed to perform or outright cancelled agreements. The issue of whether pandemic-related disruption permitted these cancellations was addressed in JN Contemporary Art LLC v. Phillips Auctioneers LLC.45 Plaintiff art dealer and defendant auction house Phillips entered into an agreement to sell a painting by artist Rudolf Stingel. The painting was to be sold at auction in May 2020, but in the midst of the covid-19 pandemic and following government restrictions on non-essential business activities, Phillips terminated the agreement, relying on its force majeure clause. The United States District Court of the Southern District of New York held that Phillips' termination was permitted as the pandemic constituted a 'natural disaster', and the pandemic and its attendant regulations restricting business operations was a type of 'circumstance beyond the parties' reasonable control' within the meaning of the parties' force majeure clause.

Although the pandemic initially caused a dip in art sales generally, it caused a significant increase in online sale activity. Online sales in 2020 generated a record high of US$12.4 billion compared to half that value in 2019.46 The increase in galleries' online sales from 2020 continued in the first half of 2021 − online sales accounted for 33 per cent of total sales, 38 per cent of sales to new buyers and 25 per cent to existing clients who were buying online for the first time in 2021.47 In-person auctions, art fairs and other modes of traditional sale have remained somewhat disrupted, although recently there has been some activity. In the first half of 2021, the share of sales by dealers at art fairs fell to 7 per cent at live events (11 per cent including art fair online viewing rooms).48 With additional options for purchasing, the share of online-only auctions also decreased from 73 per cent in the first half of 2020 to 56 per cent in the first half of 2021.49

Digital art and NFTs have also taken the market by storm. In March 2021, a digital art collage, Everydays: The First 5000 Days, by Beeple sold at Christie's auction house for a whopping US$69.3 million. The digital file was linked to an NFT, a unique asset (contrary to fungible tokens such as bitcoin or ethereum, which are interchangeable). Using blockchain technology, an NFT serves as a certificate of authenticity and ownership. The market for NFTs is constantly evolving as are its legal implications (as further discussed below).

ii Art loans

There are many reasons a private collector would want to loan a work of art to a museum. Museum loans present a philanthropic opportunity for lenders to share their works with the general public in a controlled and safe environment. Additionally, the borrowing museum may provide new scholarly information about the works. Inclusion in a museum exhibition could also bolster an artwork's provenance, potentially increasing the work's monetary value through public exposure. Many museums, however, frown upon the sale of a loaned work shortly after an exhibition. These museums often include a provision in their loan agreements that prohibits a sale within a specified period after the close of the exhibition. These periods can range from as short as three months to as long as two years after the conclusion of the loan.

Before loaning a work of art, a potential lender must first consider whether it is appropriate to lend a particular work, taking into account safety and damage concerns. Once these issues are addressed, the potential lender must then determine what should be included in the loan agreement once a work is approved for exhibition.

Lenders should also consider if the loan creates a use tax liability. This tax applies on account of a property's use within a taxing jurisdiction (in contrast to the sales tax, which applies on account of a property's sale within a taxing jurisdiction). For example, if a painting is purchased in state A, and five years later is loaned to a museum in state B, the use of that painting in state B (i.e., its exhibition at a state B museum) may subject it to a use tax. Generally, sales tax paid on a property will be credited against the owner's use tax liabilities, if any. The challenge, therefore, is mainly for works that were protected from sales tax, whether on account of happenstance or creative tax planning. The circumstances that create a sales tax exemption or discount tend to vary from state to state, and a work that has not been subject to sales tax might become subject to use tax on account of a loan to a museum situated in an inhospitable taxing jurisdiction. In those circumstances, a lender may face a use tax that is prohibitively expensive.

Another preliminary issue for the lender to consider is whether there are any provenance questions regarding the artwork. If there are competing claims to a work, these may open the artwork to the risk of judicial seizure. In the United States, the Immunity from Judicial Seizure Statute50 protects certain objects from seizure by the US government. Pursuant to the federal statute, any not-for-profit museum, cultural or educational institution may apply to the US Department of State for a determination that art to be loaned from abroad for exhibition is culturally significant and that the exhibition is in the national interest. If the application is granted, the art is immunised from judicial seizure by the federal government.

Unlike with individual collectors, where the lender is a cultural institution owned by a foreign state there are added issues to consider. Under the FSIA, a foreign state and its agencies and instrumentalities are immune from suit in US courts unless certain exceptions apply.51 One of these exceptions is where rights in property taken in violation of international law are in issue. The Foreign Cultural Exchange Jurisdictional Immunity Clarification Act of 2016 added Section 1605(h) to the FSIA, which made clear that activities of a foreign state associated with the temporary exhibition or display of art determined to be immune from seizure shall not be considered 'commercial activity' within the meaning of the FSIA's expropriation exception,52 which deals with cases in which rights in property taken in violation of international law are in issue.

Collectors lending to museums should also carefully consider the loan agreement with the museum. Although art loans raise legal concerns that touch on a variety of issues, the forms provided by the borrowing museum are often quite short and inadequate for purposes of the lender. To maximise protection, lenders should not hesitate to negotiate and add any terms reasonably necessary to protect their interests to the loan agreement. A few key areas to focus on include the following.

  1. Title: the loan agreement should make clear that the borrower does not have a right to sell or transfer title of the artwork.
  2. Insurance: the loan agreement should describe the insurance coverage for the artwork, including the work's insurance value. International loan agreements should also take into account whether any government insurance will be provided. In the US, if the exhibition is insured through the Arts and Artifacts Indemnity Act of 1975, the US government will pay insurance claims in addition to the insurance coverage provided by the borrowing museum. This insurance applies to artworks loaned to US exhibitions, where the artworks are of educational, cultural or scientific value, and are certified by the Secretary of State as being in the national interest.
  3. Taxes: for international loans, the loan agreement should take into account any tax considerations that are specific to the host country. For example, in the US, the Internal Revenue Code, Section 2105(c), provides that artworks loaned to a public gallery or museum in the US will not be subject to estate taxes if such works remain on loan at the time of the owner's death, as long as the owner is a non-resident who is not a US citizen.
  4. Copyright: the loan agreement may need to include copyright provisions. If the borrowing institution plans to photograph the artwork for publicity materials or commercial purposes, and the artwork is under an existing copyright, the borrower will have to obtain permission from both the owner and the copyright holder.
  5. Force majeure: the loan agreement should address the lender's concerns about circumstances beyond the parties' control, including war, natural disaster and political unrest. Many loan agreements excuse performance of certain provisions where events of this kind make performance of the contract dangerous.
  6. Term: the agreement should specify a term; this may help to avoid problems that would arise if the lender relocates or loses contact with the museum.

For every loan, there is a cost-benefit analysis that must be made. It is up to the lenders and borrowers to assess the risk and, if they decide to go forward with the loan, to ensure that steps are taken to maximise the safety and security of the artwork.

iii Cross-border transactions

Countries whose borders encompass the rich culture of ancient lands have struggled for decades to prevent the unauthorised excavation and smuggling of their cultural artefacts, and to attempt to reclaim them after they are discovered in the possession of museums, auction houses, galleries and collectors. The United States is the top importer of art in the world and thus, although they may arguably be insufficient, it has laws in place to combat this issue.

When US law is applicable, a true owner always has the right to reclaim stolen property, unless barred by the statute of limitations or other technical defences. To exercise this right, a plaintiff must first establish that it owns the property in question.

First, the foreign government claimant must prove that the object in the defendant's hands is, in fact, the stolen item. A foreign government plaintiff must also demonstrate that at the time the objects were discovered in and removed from its territory, there were laws in place that clearly vested the government with ownership rights, or some other proprietary interest, in the objects. Virtually all 'art-rich' countries have enacted laws, mostly in the early twentieth century, declaring that anything found in or under the ground, even if not yet discovered, is owned by the government. These laws, called 'patrimony laws', are usually the key to establishing the foreign government's ownership. Export laws are considered part of a country's internal policing regulations, and generally are not enforced by the courts of other countries. Only foreign laws clearly establishing that the government owns everything found in or under the ground will be applied in US courts.

To avoid this distinction, however, several countries have entered into special bilateral agreements with the US government pursuant to the Cultural Property Implementation Act of 1983 (CPIA),53 which implements the international Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property.54 Pursuant to these agreements, the US agrees to enforce the export laws of these countries, and will therefore seize and return items brought into the US from these countries without an export permit, even without requiring proof that the government owns those items pursuant to patrimony laws. Several countries currently have such agreements with the US, including Algeria, Belize, Bolivia, Bulgaria, Cambodia, Chile, China, Colombia, Costa Rica, Cyprus, Ecuador, Egypt, El Salvador, Greece, Guatemala, Honduras, Italy, Jordan, Libya, Mali, Peru and Turkey. The CPIA also provides for emergency implementation of import restrictions without the negotiation of a bilateral agreement for objects that are shown to be in particular jeopardy. The United States currently imposes emergency restrictions on archaeological and ethnological materials from Iraq, Syria and Yemen.

US import laws also give US Immigration and Customs Enforcement and US Customs and Border Protection authority to seize cultural property and art that are stolen or otherwise brought into the United States illegally, and the persons involved in such violations may be subject to civil and criminal penalties.

iv Art finance

US private banks will make loans to their clients and receive fine art as collateral. In general, banks are reluctant to require these clients to relinquish possession of their art collections. Lenders will only finance a percentage of the appraised fair market value of the artwork, typically 40 per cent to 60 per cent. They will also typically require proof of ownership from potential borrowers. There are also specialist art lenders, boutique lenders and auction houses that provide this service. A lender can perfect a security interest by filing a UCC financing statement that puts others on notice that there is a lien on the artwork and be just as protected from other creditors' claims as it would be had it perfected by taking possession.

An art fund, which is generally a privately offered investment fund that is managed by a professional investment manager, may be organised either in the United States or as an offshore vehicle, depending on where the fund's prospective investors reside. In the United States, art funds are typically structured as 'closed-end funds', more commonly known as private equity funds. Some art funds pursue a focused investment strategy (e.g., Old Masters or Chinese Imperial porcelain), while others seek a more diversified portfolio of artworks. While the individual strategies of art funds differ widely, at a basic level all art funds seek to generate financial gains through the acquisition and disposition of artworks.

An art fund seeks to wield its size to acquire a diversified portfolio of artworks at prices generally unattainable by individual investors. But, unlike other tangible assets held by many other types of private investment funds, art has no inherent value and, indeed, its valuation is highly subjective. Further, the art market can be extremely volatile with no certainty of liquidity. Thus, art funds rely on professional investment managers and art advisers to implement their strategies and realise investment returns. In light of the risks involved, it is important that investors consult with a professional adviser before investing in an art fund.

NFTs as an asset class also present new challenges for identifying and preventing money laundering. Digital artwork, unlike other physical works, does not have the historical price information to value a piece of work and thus provides an excellent cover in an industry where elements of the transaction are often kept private.

There are currently no specific government regulations in place specifically addressing NFTs, and whether the SEC, the government agency tasked with regulating the securities market, will deem NFTs to be securities subject to its rules, is yet to be determined. However, it is likely that a single work of digital art or collectible will not be considered a security. On the other hand, an NFT sold in groups or fractionalised (i.e., sold in shares) may have the characteristics of an investment contract making compliance with the applicable SEC rules necessary.55

Artist rights

i Moral rights

Moral rights, which are rights applying to authors irrespective of their economic rights, receive limited recognition in the United States. The United States acceded to the Berne Convention for the Protection of Literary and Artistic Works, an international treaty that governs and protects these rights (among others), in 1988.56 In 1990, Congress enacted the Visual Artists Rights Act of 1990 (VARA).57

VARA offers an artist of a work of visual art58 the right of attribution, specifically the right (1) 'to claim authorship of that work', (2) 'to prevent the use of his or her name as the author of any work of visual art that he or she did not create', and (3) 'to prevent the use of his or her name as the author of the work of visual art in the event of a distortion, mutilation or other modification of the work that would be prejudicial to his or her honour or reputation'.59

VARA also provides the right of integrity, specifically the right (1) 'to prevent any intentional distortion, mutilation, or other modification of the work that would be prejudicial to his or her honour or reputation, and any intentional distortion, mutilation or modification of that work is a violation of that right', and (2) 'to prevent any destruction of a work of recognised stature, and any intentional or grossly negligent destruction of that work is a violation of that right'.60

A few recent cases have shed light on the scope of the right to integrity. In a seminal case, Castillo v. G&M Realty LP,61 the United States Court of Appeals for the Second Circuit held that aerosol art (or 'street art') on warehouse buildings at a site, well-known as '5Pointz', were of 'recognised stature' so as to be protected from destruction by VARA.

In another suit brought in a federal court in Florida, visual artist Jacob Aaron LeVeille alleged that country rapper Ryan Edward Upchurch posted videos on social media in which he shot two of LeVeille's artworks with guns, signed his name on the works, wrote derogatory remarks on them and later widely distributed images of the altered works and publicly displayed them at an auction. The court in Leveille v. Upchurch62 denied Upchurch's motion to dismiss LeVeille's VARA claim, holding that one could reasonably infer from the allegations in the complaint that Upchurch's alterations of the works could harm LeVeille's reputation and expose the works, and his name and reputation to mockery and ridicule.

In Kerson v. Vermont Law School, Inc63, a federal court in Vermont denied artist Samuel Kerson's motion for a preliminary injunction to enjoin the school's plan to conceal two large murals painted by him and others at Vermont Law School that depicted slavery and the role of Vermont citizens in supporting the Underground Railroad. The court concluded that there was no evidence that physical deterioration would result from concealing the murals behind a fixed wall of acoustic panels and that concealing the murals or removing them from display was not a form of 'modification' or 'destruction' which is prohibited by VARA.

VARA rights extend for the life of the author for works created on or after its effective date, 1 June 1991, and for works created before 1 June 1991 to which the author still holds title on the same date, the life of the author plus 70 years.64 For joint works (two or more authors), VARA rights endure for the life of the last surviving author.65

Available remedies under VARA include injunctive relief, monetary damages, defendants' profits, statutory damages and, at the court's discretion, legal fees.

17 USC Section 1202 of the Digital Millennium Copyright Act (DMCA) protects artists from the illegal use of their images on the internet. Specifically, the DMCA, in part, imposes criminal and civil penalties on anyone who (1) prohibits the knowing provision or distribution of false 'copyright management information' (CMI)66 or (2) intentionally removes or alters CMI without authority, or disseminates CMI, knowing that the CMI has been removed or altered without authority.67

ii Resale rights

Resale royalty rights (or droit de suite, as they are known in Europe) grant artists a percentage of the proceeds from the resale of the original works of art. Although efforts have been made over several years to enact legislation, the United States does not recognise resale royalty rights. Under US copyright law's first sale doctrine, as codified in Section 109 of the Copyright Act, once an original copyright-protected work of authorship is sold, the buyer and all subsequent purchasers are free to resell that work (but not any underlying copyright rights in the work) without having to provide any compensation to the original artist or author.68 Artists may contract for resale royalty rights, which has recently become a more popular practice. NFTs configured through 'smart contracts', for example, may automatically pay out royalties to the original artist with every future sale of the NFT on a specific platform.

iii Economic rights

Artists in the United States have economic rights provided by copyright law, which allow them to derive certain financial benefits from the use of their works by others. The United States Constitution Article 1, Section 8, Clause 8 is the origin for copyright law in the United States:

The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

Enacted by Congress on 19 October 1976, the Copyright Act of 1976 provides the basic framework for the current copyright law and provides copyright protection for works created on or after 1 January 1978.69 The Copyright Act and all subsequent amendments to copyright law are contained in Title 17 of the United States Code.

Copyright, a form of intellectual property, protects original works of an author fixed in any tangible medium of expression, including 'pictorial, graphic and sculptural works'.70 Published and unpublished works are both protected (with only some differences). Copyright protection, however, does not extend to 'any idea, procedure, process, system, method of operation, concept, principle, or discovery'.71 The requirement for originality is minimal. To be original, artwork must be created independently and must have at least a 'modicum of creativity'.72

Copyright in a work generally extends from creation of the work and endures for a term consisting of the life of the author and 70 years after the author's death.73 Copyright of artwork does not automatically transfer with transfer of ownership of the artwork itself and vice versa. Transfers of copyright require an instrument in writing signed by the owner of the rights conveyed (or the owner's authorised agent).74 A copyright holder may assign one or more of the exclusive rights or license its copyright interest.

Copyright protection is not international but protection outside of the United States can be extended depending on international conventions, treaties (e.g., the Berne Convention for the Protection of Literary and Artistic Works), other bilateral instruments of the United States with other countries, and the laws of that country.75

An owner of copyrighted artwork (with some limitations) has the exclusive rights to: (1) reproduce the copyrighted work in copies; (2) prepare works derived from the copyrighted work; (3) distribute copies of the copyrighted work; and (4) display the copyrighted work publicly.76 While the copyright owner has the exclusive right to display a work publicly and the right of reproduction, copyright law carves out a special limited exception (tied to the first sale doctrine) for the display of a copy of a work rightfully owned without the authority of the copyright owner, to display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.77 This exception permits all displays of copyright-protected art by auction houses, galleries and museums. NFTs raise interesting issues and present new legal questions in copyright law. Similar to the purchase of other copyrighted work, however, purchasing an NFT does not automatically convey copyright rights in the underlying work. Minting of copyrighted works may also require permission from the copyright owner as the reproduction, distribution or public display of a copyrighted work are among the exclusive rights of a copyright owner.

If one or more of the artist's exclusive rights are violated, an artist may bring a lawsuit in a federal court, which has exclusive jurisdiction.78 Criminal proceedings have a five-year statute of limitations and civil actions have a three-year statute of limitations. To establish copyright infringement, an artist must prove: (1) ownership of a valid copyright and (2) copying by the defendant of constituent elements of the work that are original.79 A copyright registration certificate is presumptive evidence in favour of the plaintiff.80 The second element can be demonstrated by direct evidence or indirect evidence. Direct evidence can be through a witness of the act of copying or an admission of actual copying.81 While the former is rarer, copying is more frequently proven by proof that the defendant had access and substantial similarity between the copyrighted work and the claimed infringing work.82

Remedies for copyright infringement generally consist of injunction, impoundment of infringing articles, actual damages, profits or statutory damages, and attorneys' fees and costs.83

The fair use doctrine, which may provide a defence to copyright infringement, and is codified in the Copyright Act, seeks to strike a balance between a copyright owner's property rights in his or her creative works, and the ability of authors, artists and others to reference those copyrighted works as a means of expression.84 Under the Act, a court must consider the following four non-exclusive factors in assessing fair use:

  1. the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit 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.85

The outcome of any fair use case is determined by a fact-specific inquiry. For example, two recent decisions in the United States Court of Appeals for the Second Circuit deal with the issue of use of copyrighted photographs but have different outcomes.

In a pivotal decision, Andy Warhol Foundation for Visual Arts, Inc v. Goldsmith,86 concerning 'appropriation art' or art in which an artist uses another artist's work to create something new, the United States Court of Appeals for the Second Circuit reversed the District Court for the Southern District of New York and held that the Andy Warhol Foundation for the Visual Arts was not entitled to a declaration that Warhol's use of Lynn Goldsmith's photograph of the late musician Prince to create a series of silkscreen paintings, screen prints on paper and drawings (the Prince Series) was a non-infringing fair use. In 1984, Lynn Goldsmith licensed her black-and-white photograph of Prince to Vanity Fair for the limited use as an artist's reference in connection with an article to be published in the magazine. She later learned the artist to be Andy Warhol, when in 2016, after Prince's death, Condé Nast issued a magazine commemorating Prince and used one of Warhol's silkscreens for its cover. After notifying the Andy Warhol Foundation of her perceived violation of copyright in the photo, the Foundation brought a declaratory judgment action that Warhol's works were non-infringing or otherwise that they made fair use of the photo. Goldsmith and her photo agency countersued for infringement.

The Court held that in weighing the first factor and whether the secondary work is 'transformative':

the district judge should not assume the role of art critic and seek to ascertain the intent behind or meaning of the works at issue . . . Instead, the judge must examine whether the secondary work's use of its source material is in service of a 'fundamentally different and new' artistic purpose and character, such that the secondary work stands apart from the 'raw material' used to create it. . . . [T]he secondary work's transformative purpose and character must, at a bare minimum, comprise something more than the imposition of another artist's style on the primary work such that the secondary work remains both recognizably deriving from, and retaining the essential elements of, its source material.87

The Court thus determined that the first fair use factor weighed in Goldsmith's favour – despite the fact that the Prince Series displays a distinct aesthetic that may be immediately attributable to Warhol's signature style, the purpose and function of the Prince Series and Goldsmith's photo are identical, broadly, as works of visual art and, narrowly, as portraits of the same person; and the Prince Series retains the essential elements of Goldsmith's photograph such that the photo is the recognisable foundation of Warhol's works.

In weighing the second factor, the Court found that because the photograph was both creative and unpublished, this factor favoured Goldsmith; and because the Court determined that the Prince Series was not transformative, this factor should be given greater weight.

The third factor strongly weighed in favour of Goldsmith because the Court found that Warhol copied the essence of Goldsmith's photograph and the amount taken was not reasonable in relation to his purpose where the Foundation proffered no reason for Warhol requiring Goldsmith's photograph as opposed to any other photograph of Prince.

The Court held with respect to the fourth factor that, while the Prince Series and Goldsmith's photograph may occupy distinct markets as to direct sales, the Prince Series threatened the market to license the photograph to publications for editorial purposes or create derivative works based on the photo, and this harm was not outweighed by any public benefit to copying.

In another case, photographer Laurence Marano alleged that the Metropolitan Museum of Art infringed his copyright by featuring his photograph of rock guitarist Eddie Van Halen playing his 'Frankenstein' guitar in an online catalogue for an exhibition of rock 'n' roll instruments. The Second Circuit in Marano v. Metropolitan Museum of Art88 held that the Museum's display of the photograph constituted a fair use because it transformed the photo by foregrounding the instrument and its significance in the development of rock 'n' roll instruments rather than using it to present the performer, which was Marano's stated purpose; the Museum's website was free and publicly available; the Museum's copying of the entire image was necessary as one of many historical facts in the exhibition; and there was no indication that the Museum's use of the photo would impair any other market for commercial use of the photo or diminish its value.

Trusts, foundations and estates

An art collector who donates art to a charitable institution may receive a tax benefit as a result of the donation. The availability and amount of the deduction generally depends on a specific set of requirements, including the status of the organisation, the type of property donated, the use of the donated work and whether a qualified appraisal has been prepared.

Where the transfer occurs during the lifetime of the collector, he or she may receive an income tax deduction that, depending on the circumstances of the transfer, may be equal to the fair market value of the artwork. Where the transfer is part of a bequest, the donation may provide the estate with a reduction in the estate tax that is owned by the collector's estate. In either instance, the determination of 'fair market value' is critical. 'Fair market value' is the 'price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts'.89 In determining the fair market value of art, an appraisal is typically sought; but, even with an appraisal, challenges to valuation may arise.

In an effort to, inter alia, provide assistance to taxpayers in valuing artworks, the Internal Revenue Service (IRS) established what is known as Art Appraisal Services (AAS). Prior to submitting an income, gift or estate tax return, a taxpayer may request a Statement of Value from AAS to review an appraisal of an object, which the taxpayer may then use to substantiate the value of an artwork included in the return.90

Under certain circumstances, a tax return must be referred to AAS. This occurs when a return selected for audit includes an art appraisal of a single artwork with a claimed value of US$50,000 or more; the local IRS office will then refer the case to AAS, which may submit the matter to the Commissioner of Internal Revenue's Art Advisory Panel (the Panel) for additional review. The Panel, which is made up of art dealers, scholars and museum curators, assists AAS in appraising works of art valued at US$50,000 or more. The Panel's recommendations are advisory and become the position of the IRS only with AAS's concurrence. In fiscal year 2019, AAS adopted 62 per cent of the Panel's recommendations.91

Outlook and conclusions

Covid-19 has rapidly transitioned the art world to a mostly digital marketplace. Digital sales rooms, online auctions and digital art fairs have become commonplace. The market for digital art and NFTs is also booming. With this rapid online growth, the art world faces unknown territory and a changing legal landscape. Perhaps, even after the covid-19 crisis subsides or ends, the art market may be disposed to maintain its current digital presence or at least a stronger one than pre-covid-19, but only time will tell the legal implications of the shift.

Footnotes

1 Lawrence M Kaye is the managing member, Howard N Spiegler is a member, Yaél M Weitz is counsel and Gabrielle C Wilson is an associate at Kaye Spiegler PLLC.

2 See Clare McAndrew, The Art Market 2021, Art Basel & UBS Report, available at https://d2u3kfwd92fzu7.cloudfront.net/The-Art-Market_2021.pdf at 17.

3 ibid.

4 ibid.

5 See Benjamin Sutton, 'What Collectors Need to Know from the Art Market 2021 Report', Artsy (16 March 2021), www.artsy.net/article/artsy-editorial-collectors-art-market-2021-report.

6 The Financial Crimes Task Force, 'Reframing U.S. Policy on the Art Market, Recommendations for Combatting Financial Crimes' (September 2020), https://theantiquitiescoalition.org/developing-implementing-solutions/financial-crimes-task-force/#report.

7 Complaint at 1–2, U.S. v. Inigo Philbrick, No. 1:20-mj-04507 (S.D.N.Y. 30 April 2020).

8 Eileen Kinsella, 'In a Shift, Notorious Art Dealer Inigo Philbrick Set to Plead Guilty to Criminal Charges in Federal Court This Week', Artnet News (1 November 2021).

9 See The Financial Crimes Task Force, Global Anti-Money Laundering Legislation ('[O]ther major market jurisdictions – including the United Kingdom, Switzerland, and the European Union – have already taken similar action to fight money laundering and terrorist financing in their art markets . . .'), https://theantiquitiescoalition.org/developing-implementing-solutions/financial-crimes-task-force/.

10 Bank Secrecy Act of 1982, Pub. L. No. 97-258, codified at 31 U.S.C. § 5304.

11 United States Senate Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, Staff Report, 'The Art Industry and U.S. Policies That Undermine Sanctions', www.hsgac.senate.gov/download/majority-and-minority-staff-report_-the-art-industry-and-us-policies-that-undermine-sanctions.

12 ibid.

13 The Financial Crimes Task Force, footnote 9.

15 U.C.C. §2-401(2) ('Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place . . .').

16 U.C.C. § 2-403(1).

17 ibid.

18 U.C.C. § 2-403(2).

19 Abbott Labs. v. Feinberg, 506 F. Supp. 3d 185 (S.D.N.Y. 2020), appeal filed 2d Cir., 8 January 2021.

20 28 U.S.C. §§ 1605(a)–(e).

21 28 U.S.C. § 1605(a)(3).

22 Federal Republic of Germany v. Philipp, Supreme Court Docket No. 19-351, available at www.supremecourt.gov/opinions/20pdf/19-351_o7jp.pdf.

23 Brief for Petitioners, Fed. Republic of Germany v. Philipp, Supreme Court Docket No. 19-351, available at www.supremecourt.gov/DocketPDF/19/19-351/153210/20200904172357322_2020-09-04%20Brief%20of%20Petitioners.pdf.

24 Supreme Court Docket No. 18-1447, available at www.supremecourt.gov/docket/docketfiles/html/public/18-1447.html.

25 Simon v. Republic of Hungary, 812 F. 3d 127 (D.C.C. 2016).

26 19 U.S.C. § 1595a(c)(1).

27 See, e.g., United States v. Schultz, 333 F.3d 393, 410 (2d Cir. 2003) (holding that 'the NSPA applies to property that is stolen in violation of a foreign patrimony law').

28 United States v. One Cuneiform Tablet Known As The 'Gilgamesh Dream Tablet', No. 1:20-cv-02222 (E.D.N.Y. 18 May 2020).

29 ibid.

30 Department of Justice, 'Rare Cuneiform Tablet Bearing Portion of Epic of Gilgamesh Forfeited to United States' (27 July 2021), www.justice.gov/opa/pr/rare-cuneiform-tablet-bearing-portion-epic-gilgamesh-forfeited-united-states.

31 See N.Y. C.P.L.R. § 213(1), § 213(8), § 203(g).

32 See Florida Statutes § 95.11(3)(j).

33 id. at § 95.031(2)(a).

34 Pub. L. No. 114-308 (2016).

35 id. at Section 5(b).

36 The exception limits the application of the Act from applying to 'any civil claim or cause of action barred on the day before the date of enactment. . . by a Federal or State statute of limitations if – (1) the claimant or a predecessor-in-interest of the claimant had knowledge of the elements set forth in subsection (a) on or after January 1, 1999; and (2) not less than 6 years have passed from the date such claimant or predecessor-in-interest acquired such knowledge and during which time the civil claim or cause of action was not barred by a Federal or State statute of limitation'. id., at Section 5(e).

37 Department of Justice, 'Seller Of Forged Basquiats And Harings Arrested On Fraud Charges' (9 July 2021), www.justice.gov/usao-sdny/pr/seller-forged-basquiats-and-harings-arrested-fraud-charges.

38 See, generally, U.C.C. §§ 2-313-16.

39 U.C.C. § 2-714(2).

40 U.C.C. § 2-313.

41 U.C.C. § 2-314.

42 U.C.C. § 2-314(2).

43 N.Y. Arts & Cult. Affairs Law § 13.01.

44 ibid.

45 507 F. Supp. 3d 490 (S.D.N.Y. 2020).

46 Clare McAndrew, The Art Market 2021, Art Basel & UBS Report, at 210, available at https://d2u3kfwd92fzu7.cloudfront.net/The-Art-Market_2021.pdf.

47 Clare McAndrew, Resilience in the Dealers Sector, A Mid-Year 2021, Art Basel & UBS Report, at 13, available at https://d2u3kfwd92fzu7.cloudfront.net/The_Art_Market_Mid_Year_Review_2021.pdf.

48 id., at 12.

49 Helen Holmes, 'Auction Sales Have More than Tripled in 2021 as the Art World Comes Roaring Back', Observer (8 July 2021), available at https://observer.com/2021/07/auction-sales-christies-sothebys-phillips/.

50 22 U.S.C. § 2459.

51 See 28 U.S.C. §§ 1602, et seq.

52 28 U.S.C. § 1605(a)(3).

53 Convention on Cultural Property Implementation Act, 19 U.S.C. §§ 2601–2613.

54 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, 14 November 1970, 823 U.N.T.S. 231.

55 To determine whether an NFT is a security is subject to the test in US Supreme Court's decision in SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Under that Howey test, federal securities laws apply to an 'investment contract', which is created by an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of a promoter or third party. id. at 298–299.

56 Berne Notification No. 121: Berne Convention for the Protection of Literary and Artistic Works: Accession by the United States of America, World Intellectual Property Organization (17 November 1988), available at www.wipo.int/treaties/en/notifications/berne/treaty_berne_121.html. In particular, the Berne Convention's Article 6 bis provides: 'Independently of the author's economic rights, and even after the transfer of the said rights, the author shall have the right to claim authorship of the work and to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, the said work, which would be prejudicial to his honor or reputation.' Berne Convention for the Protection of Literary and Artistic Works, Paris Act of 24 July 1971, as amended on 28 September 1979, available at www.wipo.int/edocs/lexdocs/treaties/en/berne/trt_berne_001en.pdf.

57 Pub L. No. 101-650, Title VI, 104 Stat. 5128 (1990).

58 'A 'work of visual art' is – (1) a painting, drawing, print, or sculpture, existing in a single copy, in a limited edition of 200 copies or fewer that are signed and consecutively numbered by the author, or, in the case of a sculpture, in multiple cast, carved, or fabricated sculptures of 200 or fewer that are consecutively numbered by the author and bear the signature or other identifying mark of the author; or (2) a still photographic image produced for exhibition purposes only, existing in a single copy that is signed by the author, or in a limited edition of 200 copies or fewer that are signed and consecutively numbered by the author. A work of visual art does not include – (A)(i) any poster, map, globe, chart, technical drawing, diagram, model, applied art, motion picture or other audiovisual work, book, magazine, newspaper, periodical, data base, electronic information service, electronic publication, or similar publication; (ii) any merchandising item or advertising, promotional, descriptive, covering, or packaging material or container; (iii) any portion or part of any item described in clause (i) or (ii); (B) any work made for hire; or (C) any work not subject to copyright protection under this title.' 17 U.S.C. § 101.

59 17 U.S.C. §§ 106A(a)(1)-(2).

60 17 U.S.C. § 106A(a)(3).

61 950 F.3d 155 (2d Cir. 2020).

62 No. 3:19-CV-908-J-39MCR, 2020 WL 10180570 (M.D. Fla. 3 August 2020).

63 No. 5:20-CV-202, 2021 WL 4142268 (D. Vt. 10 March 2021).

64 17 U.S.C. §§ 106A(d)(1)–(2).

65 17 U.S.C. § 106A(d)(3).

66 Such information includes '[t]he title and other information identifying the work', '[t]he name of, and other identifying information about, the author of a work', '[t]he name of, and other identifying information about, the copyright owner of the work', 'the name of, and other identifying information about, a performer whose performance is fixed in a work other than an audiovisual work', 'the name of, and other identifying information about, a writer, performer, or director who is credited in the audiovisual work', '[t]erms and conditions for use of the work', '[i]dentifying numbers or symbols referring to such information or links to such information' and '[s]uch other information as the Register of Copyrights may prescribe by regulation'. 17 U.S.C. § 1202(c).

67 17 U.S.C. §§ 1202–1204.

68 17 U.S.C. § 109.

69 The earlier Copyright Act of 1909 applies to works created before 1 January 1978.

70 17 U.S.C. § 102(a). '“Pictorial, graphic and sculptural works” include two-dimensional and three-dimensional works of fine, graphic and applied art, photographs, prints and art reproductions, maps, globes, charts, diagrams, models, and technical drawings, including architectural plans. Such works shall include works of artistic craftsmanship insofar as their form but not their mechanical or utilitarian aspects are concerned; the design of a useful article, as defined in this section, shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.' 17 U.S.C. § 101. '[A]rchitectural works' are also protected by copyright law (see 17 U.S.C. § 102(a)(8)) but are outside the scope of this chapter.

71 17 U.S.C. § 102(b).

72 Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 346, 111 S. Ct. 1282, 1288 (1991).

73 17 U.S.C. § 302.

74 17 U.S.C. § 204(a).

76 17 U.S.C. § 106.

77 17 U.S.C. § 109(c).

78 28 U.S.C. § 1338.

79 Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 361, 111 S. Ct. 1282, 1296 (1991).

80 Melville B Nimmer and David Nimmer, Nimmer on Copyright, § 13.01[A], 13-8 (2014).

81 id., at § 13.01[A], 13-12.

82 id., at § 13.01[A], 13-13.

83 17 U.S.C. §§ 502–505.

84 17 U.S.C. § 107.

85 ibid.

86 11 F.4th 26, 41 (2d Cir. 2021).

87 id. at 41.

88 844 F. App'x 436 (2d Cir. 2021), cert. denied, No. 21-6, 2021 WL 4508476 (U.S. 4 October 2021). This case also gives an extensive overview of Second Circuit case law on the issue of fair use.

89 See 26 CFR § 1.170A-1(c)(2) (for charitable contributions); 26 CFR § 20.2031-1(b) (for estate tax purposes); and 26 CFR § 25.2512-1 (for gift tax purposes).

90 Rev. Proc. 96-15. The reviewed appraisals most generally exceed US$50,000 in value.

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